Should Small Businesses Buy or Generate Leads?
I get calls occasionally from people who want to know what I charge for a sales lead.
For a while, I was confused by this … because, frankly, I didn’t have an answer for them.
I never know what it will cost to generate a lead for a particular client until after we’ve done some initial campaigns.
I suppose I could give these callers some idea (maybe a range) based on my experience with other clients, but I’ve seen too much variation from industry to industry, application to application.
And in the absence of relevant historical data, I’m very uncomfortable about predicting response.
Of course, I understand why these callers want this information.
They are building a marketing or business plan and so much of that plan depends on unknown factors like response rates, click through rates, conversion rates, cost per lead, cost per qualified lead and cost per new customer acquisition.
However, there are some businesses that do sell leads. It’s a very different business model.
Let’s take a closer look at these two business models.
Generating a lead
Like most other agencies, marketing firms and consultants, I provide a range of marketing services to help my clients generate leads. I charge a fee for my services, I provide a budget for execution and I try to provide some expectation of the results.
Depending on the client, the product/service and the target audience, I use different tactics to generate leads. It might be Google pay-per-click search advertising, or direct mail, or email, or online display advertising, or print advertising. Or it might be a combination of these tactics.
But I never know what a lead will cost until after some preliminary programs are tested. Initial programs often result in a higher cost per lead, but after some tweaking, we can usually bring that cost down.
Depending on the marketing tactic we are using, I can usually provide a range of likely results, but until we actually implement some initial tests, I can’t feel confident.
The advantage of this approach is that everything is completely transparent and you are involved throughout the process. And even if we part ways, you still have a marketing program in place that will continue to generate leads.
The disadvantage, as noted above, is that you need to make an investment up front.
Buying a lead
There are companies that take a very different approach to lead generation.
Instead of working with you in creating your own marketing program, they do the work behind the scenes with their own investment. They produce the leads themselves and then they sell those leads on the open market.
These are usually companies that have a particular expertise in telemarketing, email, pay-per-click advertising or SEO.
And they usually work in very specific markets where there is strong demand for new sales leads.
Insurance is a popular market. Lead generation companies create their own insurance websites – usually multiple websites for different insurance products.
They use SEO and pay-per-click advertising to find people who are interested in specific insurance products.
Over time, they have discovered what it costs to produce a particular type of insurance lead, They have reached the point where they can predict their cost per lead – which allows them to confidently establish a fixed price per lead.
And then they sell these leads to insurance agents in various markets.
Buyers of these leads need to ask about exclusivity because sometimes leads are sold to more than one buyer. You may have to pay a premium for exclusive leads
The advantage with these programs is you only pay for what you buy. There’s very little investment up front.
The disadvantage is you don’t see how the lead was generated. There’s very little transparency and, in the end, when you part ways with the lead provider, your leads will disappear.
The importance of lead quality
Regardless of the approach you take, give careful consideration to your lead quality.
It’s too easy to get seduced by high volume or low cost sales leads without any idea of the quality of those leads.
What do you consider to be a qualified sales lead?
In B2B, you might ask:
- Does the lead need to fit a certain demographic (industry, company size, job function, etc.)?
- Does the lead need to show a certain level of interest?
- Is there a purchasing timetable requirement?
In B2C, you might ask:
- Does the lead need to fit a certain demographic (gender, income, family size, etc.)?
- Does the lead need to demonstrate a certain level of interest?
- Is there a purchasing timetable requirement?
Different marketing tactics will help you answer different questions, but may fall short on other questions.
For example, SEO, paid search and online advertising do a good a job of generating low-cost leads but you have no control who responds. Your leads may come from anyone who finds you online – including students, competitors and prospects who may not fit your demographic criteria.
Direct mail, on the other hand, can limit your reach to your selected demographic criteria, but your lead costs will be higher.
You may need to add another step in this process – a follow-up phone call – to qualify the leads before they are sent to your sales team. And that needs to be added to your lead cost.
In the end, when you are comparing the two programs – generating a lead vs. buying a lead – try to establish a benchmark for a qualified lead.
And then compare programs not for the cost for a lead but for the cost per of a qualified lead.
