Newer agents have no idea about CPA.  They often think it’s an accountant. 

CPA is cost per acquisition.

It’s quite simple.  Let’s say you spend $10,000 on marketing and got 100 clients.  $10,000/100 = $100 CPA.  You essentially bought a new client for $100.

Is that good? 

It all depends on what your customer is worth to you.  Here’s another example. 

Let’s say you spend $30,000 and got the same 100 clients.  $30,000/100 = $300 CPA. 

So now you spent $300 to buy each new client.

Obviously $100 sounds better than $300.  But there’s other things you need to know.

Time and effort

How much time and effort do you have to spend in addition to money to gain a new client.  If you have to drive to knock on doors of people who sent in a lead card but won’t answer your phone then you have additional costs of mileage plus the time spent. 

So it’s really difficult to scale beyond a certain amount of sales each month because you are limited by time.

LTV

LTV stands for lifetime value of client.  This is important because you need to know how much you can invest (CPA) to get a client that will be profitable for you.

It doesn’t make sense to spend $100 to get a client that’s worth $80. 

The big public companies normally use a LTV of around $1,000 for each new client.  They also lose about 40% of their sales during the first year.  So I think $1,000 is quite low for solo agents who have a connection to their clients.

I use $1,400 for my LTV.  I think it will probably be a bit low but I’d rather guess low and be wrong in a positive way than guess to high and stress about the negative consequences later.

So I have no problem spending $200 to make $1,400.  From simple math, I’d have no problem spending $600 to make $1,400.

But here’s the problem for most solo agents when trying to spend that much money for each new client.

Cash Flow

A new to Medicare Advantage sale nets you around $600.  You get paid within a month or so of making the sale.  And renewals start in January at about $25 each month.

A Medicare supplement/Medigap new client varies more depending on where you are.  Commissions are normally around 20% of the premium. So a $125/month premium = $1,500 annual premium.  That is about a $300 commission first year for you.  Most advances are 9 months so you get paid $225 up front.  Plus another $90 or so for a drug plan.  So your 30 day cash flow (cash you receive within 30 days of making the sale) is around $315.

If you write 50/50 Medicare advantage vs Medigap then your average cash flow = ($600 + $315/2) $457.50.

As long as your CPA is below your 30 day cash flow you are cash flow positive immediately.  Then in January your renewals start for Medicare advantage.  Your Medigap starts renewals start in month 10 since you took a 9 month advance. 

Most solo agents can spend more on marketing

Most agents are scared to invest money into their business.  Worried about spending $300 to get a new client.  Even though they would be cash flow positive immediately.  And could build their renewals faster which makes them more money overall.

Plus it’s way more fun to work with people calling you instead of chasing down leads.