What you should know before entering into a Cost per Lead agreement?

What you should know before entering into a Cost per Lead agreement?

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If you own the marketplace you control the trading environment. But if history has taught us anything, no structure lasts forever.

Historically the TV networks controlled distribution and what viewers saw and when they saw it. Companies like Netflix, Apple TV and YouTube have changed this structure and our habits.

Supermarkets beat producers down on price to increase sales and today Farmers Markets allow you to bypass this monopoly and buy directly from the producer.

Search engines control the online bidding war for consumer dollars and ... unfortunately Google still has the copyright on this. But can you sidestep the competitive bidding war that is Google Adwords? Not entirely, but you can release yourself from the risk by entering into a Cost per Lead agreement and only pay for outcomes.

This online lead generation model is based on the Client (the company supplying consumer’s the end product/service) and a Marketing Company agreeing on the price both are prepared to sell and buy for a qualified lead.

This article will outline in detail:

Specific chapters can be accessed by clicking the titles above.

 

The four lead generation options

There are a number of ways to find qualified consumers en masse. We’re going to focus on three main avenues and five methodologies. Before we look at the pure online channels let’s first look at two of the other common methodologies.

Affiliate Marketing

This form of lead generation is where an individual or company own a large database of email addresses and send your offer to their consumers by way of a mass distribution email. The client pays for a completed contact form being filled in by the consumer.

These databases can number into the millions and they can be very specific in which type of consumer receives your offer. The better operators protect their databases vehemently, refusing to spam their database for quick dollars. It pays to be a household name and willing to pay for the privilege of accessing these databases.

National consumables work best in this channel: electricity, telecommunications, credit cards, fashion and education are good categories. Localised, specific and B2B offers don’t work well using this strategy.

Affiliate marketing is best viewed as campaign based unless you can access 6-12 different databases. It can be sporadic throughout the day as well. For these two reasons it can lack consistency in its results.

The other way to receive a lead using this channel is called co-registration. Here you’re piggy backing off the success of another company’s campaign. Before the consumer completes the contact form a pop up asks if they would like your offer as well. Activating the connection is as easy as ticking a box. The challenge is consumers are on the page for a totally different reason.

While these leads are very inexpensive ($1-2) they are of poor quality and it’s at odds with the consumer’s expectation. It’s ironic the companies who have used this form of lead generation say the leads were more of an annoyance than anything else so for this reason co-registration has given the affiliate industry a bad name.

Outbound call centres

The other common form of lead generation is to use an outbound call centre. This works best if you’re supplying roof sealing, solar installation or phone discounts. Some company’s do it very well and have built great companies out of it. So while it works for B2C it’s a more difficult proposition for B2B situations.

The reason why it still works is humans have an inbuilt need to connect and find it difficult to say no. The operator goes through a well formed script and has a specific outcome all while the consumer is in the comfort of their own home. Normally the outcome is a commitment to have an in home meeting.

Online aggregators

This model is where your offer is displayed with up to 20 other companies on a website. The consumer determines the specifics of what they are looking for and companies call the consumer asking for their business.

The better type aggregator models conclude with 1 or 2 options for the consumer and are redirected to your website. This channel is more effective with a clearly defined value proposition or point of difference; such as credit cards or financial lending services.

The challenge with this model is if the aggregator finds it difficult to clearly separate your offer from the other 20 companies on the website you’ll have 6-8 other companies calling the consumer in a 10 minute period. So this model works less for domestic services such as lawn mowing and home removalists.

Aggregator models and co-registration is less about the consumer and you, the client, and more about the marketing company making money. These models make suppliers look desperate at the expense of the consumer relationship.

Google Adwords

Finally we come to the pure online channel of Google Adwords.

You can’t beat this style of marketing for consistency of conversions. It trumps most everything else because of the psychology of why and how people access the platform. Unlike other forms of connectivity, here the consumer is reaching out at their time of calling.

Nothing converts as well a consumer who wants something now

The need to discover and the desire for instant gratification can’t be replicated in the other forms of lead generation and this is why Adwords beats everything else hands down for consistency and outcome. Google Adwords is Pull Marketing at it’s best.

 

The psychology of push and pull marketing

Affiliate marketing and outreach phone calling both have their place however the challenge with these channels is you’re reaching out to the consumer (Push Marketing) and asking them to purchase your product. But until then they may not have thought about purchasing your product.

Push marketing - A promotional strategy in which a business attempts to get their message in front of their potential customers without them having a desire or interest to buy the product or learn more about it.

But Pull marketing changes all that.

Despite all the education your competitors freely offered consumers through their organically ranked efforts, in an instant you can jump to the front of the queue and literally steal business right out of the hands of the incumbent.

SEO companies won’t tell you about this.

They also won’t tell you about the buyer intent which comes with it either. They normally quote it at around 4% but we’ve experienced this to be higher than 40% in some categories.

Facebook and Instagram are also online channels worth considering but you’re still interrupting people and while there’s no doubt consumers will convert, the buyer intent and conversion rates are much lower.

Where is the highest buyer intent?

Google has been shouting from the rooftops about micro-moments, it’s become a bit of a buzz word but they’ve absolutely nailed it with Mobile being the dominant device to access Search. Consumers can how search anywhere at any time to find answers.

But simply advertising is not good enough. Historically we’ve seen websites in paid advertising convert from as low as 1% to as high as 15%, at the lower end you’d almost wonder why they bother.

To really capitalise on the opportunity you’ve got to find someone willing to take a risk and who has a strong system behind them. An online marketing company starts to get excited when they hit 20% conversion rates but when landing pages hit 30% you start to make lots of money.

The advantage for the client is they’ve just turbocharged their client intake without the expense or pain associated with knowing how to do it themselves.

An online conversions company who has the courage to move to a Pay per Lead model either knows their business very well or they’re totally stupid.

Why we moved to a Cost per Lead model

It’s important to note we haven’t moved to a Cost per Lead model because we want to work with small clients who can’t afford to enter into a monthly retainer model. This move is about having greater creative autonomy and increased profitability.

The normal way for a landing page optimisation company to do business is to have a monthly management fee or retainer model. Here are the four great frustrations with this model.

  1. Clients don’t respect the effort taken to deliver results and can become blaze once they’re used to the volume of qualified leads. Their sales process doesn’t improve, the leads are not followed through correctly and call centre response times can become lengthy.
  2. Inevitably a no man’s land can form between the two entities. Sometimes this is because the client is just too busy to give feedback and in some situations it’s because the client just doesn’t want you to know too much. The challenge here is with half the picture you’re only half as effective.
  3. Limited budgets. If a client refuses to spend more than $10,000 a month on Adwords when we can clearly show them $30,000 will net them a far greater return there’s money being left on the table. Also if the monthly management fee is below par you’re constantly reining the client’s expectation in and the campaign loses its excitement.
  4. The client thinks they know better. While we need to work within brand guidelines and the client’s sales process we can get drawn in the company politics. The real value of using an external specialist is we don’t come with the ego. Ego is the reason why so many company run campaigns fail.

For these reasons we’ve moved some of our operations to Pay per Lead models. It doesn’t suit every company and there are some considerations and criteria to check before you enter into an agreement such as this.

 

What do client’s need to know about Cost per Lead models

Know your numbers

If you’re the client, or the company supplying the consumer the end product/service you must understand your numbers intimately.

  • What are the current costs of acquisition?
  • What is the profit per acquisition?
  • What is the life time value of the customer?
  • What is the average timeframe from contact to sale?
  • What’s the upfront earn on a signature from the consumer?

Have a robust sales process

Entering into a Cost per Lead arrangement means you must have an existing and capable sales team with a proven and strong sales process. If you’re going to double or triple sales within a 6 month period you’ve got to have everything in place and ready to go. You’re going to want to make the most of every conversion you can get your hands on.

Know your category

In any sale there are three critical elements which contribute to a fast and successful outcome for both parties.

  1. An external pressure
  2. A need
  3. A timeframe

Without them we’re all just wasting time. If you have two of these three the creative team can make up the third element but in most categories if you have all three there’s a probability you can create a 25% - 30% converting campaign.

Profitability

There needs to be enough margin in your product/service to justify the new model. While you’re not paying directly for the hours worked or the expense of bidding online and any associated profit, the lead cost does account for all these factors.

This is not a one sided relationship either. Both companies need to benefit over the mid and long term. If you can make $3M over the term expect the marketing partner to earn 20% in commissions.

No risk

The big advantage for the client is there is no risk. All costs have been eliminated from your balance sheet. There are no Marketing costs, no need for asset creation as well as employee wages or any associated on costs such as further education. There’s also no paying for a failed campaign if it does go pear shaped. You’re simply paying for what you extract from the relationship.

Be transparent

One of the best indicators you shouldn’t be working with a company is there’s no transparency in the negotiation stage. You should be treating this relationship like you have just bought a Marketing company because you’re going to be working to the same goal and acting as one team.

Transparency throughout the relationship will help the marketing company supply the most qualified lead possible and for you to convert the lead into business.

What are you paying for?

It’s imperative both parties understand what is being paid for in detail. What is a qualified lead and what details make up the lead? This must be signed off prior to work commencing.

Similarly you’ve got to respect each lead by placing it through the same sales process every time so you can optimise the process periodically. The marketing company will have a system which operates with a huge amount of precision and for them to know what does or doesn’t translate into business for you will help them achieve more sales month on month.

Scalability

In these relationships it’s best to run with purpose but to a level you can both handle. If the existing sales team is doing 50 sales a month but could handle 100 sales without increasing personnel then make this part of your strategy over the first 3-4 months. This allows ample time to hire and teach new people the sales process. It also helps you optimise the existing process if it does need improving.

Some companies have great sales models but cannot scale because they lack the belief their situation can change. But you could have a powerful ally with your marketing so blue sky the next 12 months and ask yourself how many conversions you could handle each month.

Funding

Few company directors are prepared to put everything on the line on a hunch. If you can find a company who knows the landscape and has years of skin in the game the road map can be a lot clearer and easier to navigate. They often have business models to enable growth. Our average funding commitment to a 12 month term is $250,000. This funding is required before any profit is made.

Fail fast

You’ve got to give a relationship like this a 150 day gestation period. If you’re not hitting the numbers you hoped by this time either make a new agreement or fail fast. While the marketing company and the client might have agreement the key to success is finding and winning the heart of the consumer. So expect the road to success to be bumpy.

There have been instances where we’re had to reposition the campaign several times before we nailed it. They were frustrating times but we got there. There have also been times where we had to fail fast and terminate the relationship because sometimes people are not who they say they are.

 

In conclusion

If you want to be the 1%, do what the 99% won’t

There’s a risk to finding a company prepared to enter into a Cost per Lead arrangement. If you can find someone to take you to the next level there’s a huge reward for having the courage to do so.

The biggest digital agencies are always scooping up good quality digital specialists; they can also morph into online retailers like Booktopia. So they’re out there, they might even be before your very eyes.

Onward and upward

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Posted: 21 Sep 16 By: Comments: Be the first to comment! Category: Lead Generation
Steve Palmer

Steve Palmer is the Joint Founder and CEO of Showtime Digital. Steve has been in B2B sales since 1997 but influencing people and behavioural science has been a long-term passion.

The magic he brings to his clients is in knowing how to engage their audience. His goal is to help businesses understand the deeper reasons of why consumers convert online with them.

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