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Can You Make Lead Generation Profitable?

The answer to the title question is interesting and for some the answer is yes but for you the answer might be no.

Signpost "Lead Generation"For years now the Lead Generation Industry has had many players that have risen to become some of the largest advertising spends for companies like Yahoo, MSN and Google. They would, and are still, spending millions of dollars a month on advertising to simply get a user to their designated landing page. Sadly, many of those companies are no longer operating. My business partners and I have worked and operated two of the largest, and At one time both companies were easily the #3 or #4 largest mortgage lead generators around. It was common to see us spend $50,000 to $150,000 in one day for a Yahoo home page placement and we would generate tens of thousands of leads in one day.

So why did they and others fail and why are so many other players simply hanging on? To an outsider, looking in, lead generation seems like a fairly simple model. The marketer generates a lead for a certain price and then must sell that lead either exclusively or semi exclusively (up to 5 times) for a certain Revenue Per Lead (RPL). Hopefully you cover your cost to generate the lead and squeak out a profit. The devil is in the details; unfortunately Lead Generation is much more complex and problematic. Its equivalent to cooking duck, you start out with this huge bird and by the time you get the meat off the duck you are left scratching your head and saying, is that it? Lead Generation is very similar; you start out with a ton of leads but may not sell even 20% of them.

In order to be successful you must have a robust “Buyer Network” which will want to purchase the leads you are generating. Hopefully they pay you for the leads. *Quick note: If more than 50% of the leads you sell are not being paid for in advance you are in danger. I will save that conversation for another time, let’s just say 2007 was not a good time be paid on net terms and now things are worse than 2007.   Once you have a buyer network you will ultimately have “Filters” that your buyers will want to put in place prior to purchasing your leads. Once you figure the filters out now you might have to deal with returns or worse yet your buyers complaining that the leads do not convert.  The answer to the complaints is, Mr. Buyer, have your agents sell better! However you will end up dialing in your marketing that much more to get a more targeted user. But wait a minute now your marketing costs just skyrocketed because of the targeting costs either on a Cost Per Click (CPC) or a Cost Per Thousand (CPM) basis. Guess what, your Buyer Network does not want to pay more for the lead even if your costs have increased. Welcome to Lead Generation folks.

So what’s the solution? How can you make this model work? What do you have to change in your marketing or selling of the lead(s)?

This might be controversial but I contend do not do anything! Your buyers are always going to complain and your marketing costs are always going to be too high. If your lead buyers knew how to generate leads efficiently they would be generating leads on their own. Now how can you expect them to call on those leads and close them at a high enough level that you will not get complaints? Furthermore by them complaining this will ensure the CPL’s stay at a lower level most of the time. In other words it is a price control mechanism they have over you. Please stop chasing that perfect scenario where your lead to buyer ratio is exactly where you want it, because it will never happen. The question you should ask yourself is, what else can I be doing to make more money on my traffic that I am generating? Then make sure you position your consumer funnel in a way that you have an opportunity to make money at every step of the lead funnel. To do this you cannot just throw up random ad units and exit pops. Users will simply ignore those old tactics. Rather than targeting your traffic better before you ever get the traffic, target them once you have the traffic. Then give them a unique, value added experience that makes sense for them. If you do that guess what they will convert into a revenue event for you.

Here is a likely scenario you might find yourself in. If you generate 100 users to your lead forms, at best you will only get about 30% of those users to fill out your form.  Of those 30 or so leads you will only sell a certain percentage of them enough times to make the profit you need. By focusing on the users that are not turning into a high enough revenue event, you will then start the process of making your marketing more efficient. At our company we call this focusing on your “Secondary Revenue” by looking at all the “Spillage” your site(s) are generating. Spillage can be anything from: drop-off and exit traffic, to a poor sell through rate on your leads. At our company our motto is “focus on the spillage and find the secondary revenue opportunities”.

In the above scenario, what if you focused on how to give the remaining 70 users who did not turn into a revenue event and opportunity to do so? If you can convert even a small percentage of those users into a relevant product other than your primary lead product you have a leg up on your competition. By generating secondary revenue you will be able to increase your threshold for acquiring traffic and leads. Instead of narrowing your marketing to the point of it not making economic sense you can expand the audience size and in some cases decrease your per lead cost. The goal should be to cast a wide net on the traffic and have an opportunity to convert each segment of traffic into a revenue event. You can do this by utilizing a Cross-Sell platform, email, call center or even text messaging.

If you have enough levers to pull at your disposal you will find that Lead Generation may be complex with thin margins initially but by utilizing these strategies you will start making your marketing more profitable.