Talk about calibrating marketing efforts to results: Online insurance firm InsWeb cut its direct marketing budget by 70% between first-quarter 2008 and first-quarter 2009. What was the upshot? A 73% decline in revenue first-quarter 2009 revenue. And what had been six figures of net income a year ago became a six-figure net loss during the most recent quarter.
Here’s what happened: InsWeb, which electronically matches consumers with providers of automobile, homeowners and term life insurance, cut its direct marketing spending from $9.3 million a year ago to $6.5 million. In part, this was because it increased its reliance on other aggregators for finding new customers, as opposed to sponsored search, portal advertising and e-mail campaigns.
As the company noted, its direct marketing-per-customer expense dropped from $2.47 to $1.60 – customers acquired through other aggregators are paid for on a revenue-sharing basis, as opposed to being paid for up front.
Let’s hope these customers have lifetime value, because they don’t seem to be spending now. InsWeb’s first-quarter revenue fell from just under $13 million a year ago to $9.5 million during first-quarter 2009. And while InsWeb recorded $590,000 in net income a year ago, in first-quarter 2008 it generated a $550,000 loss.
But if the drop in direct marketing expenses and revenue was more or less parallel, where did the loss come from? Well, sales and marketing expenses, which include payroll and related expenses, employee benefits, facility costs, telecommunications and systems, rose from $1.3 million to just under $1.8 million, primarily due to increased headcount.
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