My two cents on this as a business owner is that it sounds like a nightmare for invoicing. There would be a lot of questioning around what leads you can charge for (person goes to voicemail, call for the wrong business, duplicate calls etc) which I know is a big customer service issue for lead companies I've run into. I feel like it would eat up a lot of time figuring this out that I would prefer to spend on other things.
The other thing I'm thinking is if I did this for my clients, their bills would continue to rise month-to-month and the ROI wouldn't increase in the sense that their leads to up but so do my rates. Personally I love showing clients how awesome their ROI is on month 4 compared to month 1. I could see this possibily backfiring with people being more likely to cancel with the cost being high. I will see if I can get input for you from someone who has actually tried this model.
Thanks Joy!
I believe the benefits outweigh the hassle of invoicing. My belief is that nothing is a hassle unless I'm not being paid enough. I also think I've worked out the invoicing to the point they only paid for a lead where the phone is answered. We'll charge over the top of what we would typically charge to make up for the missed calls, calls going to voicemail that can't be proved a lead, etc. Maybe $10 to $20 extra per lead. This simplifies billing and allows us to still collect, if only partially, on those missed leads. It also makes the client happy he might get a few extra free leads. Which I'm fine with because I've already charged on top for.
On bills rising, that's the main benefit of this model. An SEO agency is paid what they're worth. I love to watch my client's ROI increase as well, until I realized I was much more valuable (and in some cases astronomically more valuable) than I was charging for. Good SEO's are more than likely undercharging uniformly across the industry. I would argue any quality SEO company, unless they're doing a CPL model, is undercharging. The only true way to be paid your value is base it on performance. This also makes your agency more creative in how you generate leads. I'd be much more likely to go even further above and beyond than I am currently. It incentivizes innovation (which I'm actually very excited about).
I do agree with the point made earlier that high cost is a con. I'm working on that currently as well but it's really the only disadvantage I am seeing currently.
1) Is anyone doing cost per lead now? How have you found it to work out?
I've done it, but in very limited circumstances with very sophisticated partners.
2) Has anyone switched to cost per lead but then switched back?
Yep, I've done that too.
3) What are some cons I have missed?
Some of these might be repeats (admittedly, I'm moving too fast here):
- Lead quality. Really important to define this very specifically in advance. You'll say qualified, i should get paid, partner will try to find exceptions, and they'll grow. Also, if you're able, you should suggest transparency into their sales process and data. Leads are only as good as they're worked.
- Pricing. A business's target cost per acquisition is likely to change based on a bunch of factors. Your arrangement should account for this.
- Risk. With pay per lead, you're fronting the risk (i.e. doing all the work that leads up to the lead). Perhaps if you're already driving a quantity of quality leads, the risk is lower. But then again, what happens after they decide to stop? I'm assuming you're driving leads to their property.
4) How would you find a good cost per lead for the health/legal industry and any other industries?
So, my experience is in legal. Ultimately, it has to be based on a target cost per acquisition that works for the business. I'd also benchmark and set prices based on target forecasts and actual numbers.
Good luck!
Hey, gyitsakalakis! Thanks for the input.
Why did you switch back? What did you find were the problems?
In response to the cons:
1) Lead Quality - I just assumed I would charge for any lead that mentioned "Google or online reviews (as long as we're the sole person doing review generation). With our HVAC company now, after listening to the calls, it seems pretty straightforward on how to grade the lead, at least for a local business. Thoughts?
2) Pricing - Do you mean CPA change on a business to business basis (as in CPA will be more for this business vs this business) or fluctuate over a period of time for a sole business (based on fluctuating overhead, seasons, etc.)? I think I have answers for both of those I would like to get your input on.
3) I do 12 month contracts as it is now. This would be the same. They would be legally obligated, just like my current flat fee clients, to pay for the work done. Thoughts?
So I think the fundamental issue with this model is that you're making it harder on the agency (us) to make money. Why would I want to delay payment on all of my accounts with the hopes of getting paid down the road IF we succeed in our objectives? Why would we front the time/$$ to rank a website when we don't have to? More risk for us isn't appealing.
It's much better for the agency to retain a client for a set amount like clockwork each month rather than have swings month to month and no predictability.
Hey Adam, thanks for the input!
Respectfully, I disagree with this point. The main benefit of the CPL model is an increase in revenue. In fact, the primary con of the CPL model (high cost) shows that. We would make more money over time as long as we do good work. There would be no risk, as long as we can do what we say we can do, and I'm sure you'd agree that if we can't, we shouldn't get paid.
If you're smart, you upsell a higher monthly rate once the client becomes successful and trusts you. So you start at 1k a month and when you see leads start to increase, you initiate a convo about upping the amount to 2k. This way you're not forever locked into a set price even when they grow. We charge more when clients grow to additional locations, traffic/leads increase nicely, etc. The clients are much more likely to pay more once you get them there. so I believe this pricing model is better overall. If a client leaves after 3-6 months, at least you got paid for those months. The biggest benefit to this model is the ability to convince a business to work with you at the start...but if you have a solid track record, that typically works just as well.
I just caught onto this lately. I've been charging the same amount from beginning to end, not increasing price unless my work load increased. I'm not sure how I feel about increasing price even though I'm not doing any extra work but I can see the merit in it. I'll definitely consider this further.
1. tracking every lead that comes in from all sources. Are we counting all leads from every source? Just on the website? What if they're running other campaigns like Adwords, 3rd party ads, etc that you aren't in control of? What if they already have some leads coming in when you start with them? Are they going to want to pay you for the 10 leads they generate on their own each month at the start?
GMB page as well as website for call tracking. Website lead forms. Adwords, 3rd party ads, etc. would not trigger call tracking numbers on the site.
Now, leads already coming in, that's a great point. Fantastic point. Thank you bringing it up. I've thought about that but dismissed it as a non issue because when all my current clients have come to me, they're not generating leads from Google. They know they need help. Do you have clients that have come to you already with a lead base from SEO?
2. determining what a lead is in the business owners mind. Is it a call lasting longer than 1 min? Do you have to listen to every call and weed out any non-relevant? It can get time consuming. Repeat this process with all form inquiries.
I have a call grader that does this already. The more work she has (leads coming in to grade) the more I get paid. So scaling that shouldn't be an issue as revenue scales to pay her for it.
3. You would have to force them into a contract for CPL campaigns. If I build up your SEO for 3-6 months and you start crushing it....and then you cancel because I did the work and you don't really need me anymore....you just worked for free/nothing at that point. So the risk goes up on the agency side unless you have them locked into an agreement of some sort.
Agreed. I would do a 12 month contract. Also, I don't typically have issues with clients cancelling so I don't expect that to be an issue. When you start talking about no longer doing work for them, competitors passing them, Google changing things on them, they typically want to keep the leads coming in. I think I've had one business cancel when their stuff was going well.
4. Some campaigns will take longer. If I'm starting out with a new attorney in a major market it will take 1yr+ to generate any sort of decent lead flow via SEO. So I get paid very little while I spend time and money ranking the website, and then maybe year 2 I start making my money back IF the client sticks around at that point....again, very risky.
Excellent point here. I'll have to think about that further. I could see a client cancelling when it gets going well only to search for another SEO company and ask how much it would cost to "maintain" the SEO. This is another point the cost being too high at some point. Thanks for pointing this out!
6. Cost per different types of leads - going back to #2....most businesses have a variety of services they offer and each one could be worth different amounts to them so they may want to pay different amounts for different service leads which makes tracking and sorting even more complicated.
Our HVAC company is a great example. AC repair vs a system replacement is the difference between $100-$200 and $10,000. However, to keep it simple, I planned on averaging the cost of a lead together, understanding that I won't get paid as much on the installs but if I do a good job, the money I make will more than make up for that.
The PROs for me are..
- easier sale (even though it's technically not a sale) + lock them into a contract of some sort with a penalty if they cancel?
- less reporting in some ways, more in others - example, you probably don't have to report on keyword rankings and be held hostage by those metrics if you're sole focus is on leads.
- maybe more money over time...maybe...
I think this is the key. Really, the only advantage that makes CPL worth it is that CPL should always lead to more money over time if we do the job we say we can do. If it doesn't lead to more money for us, we're overcharging the customer in that case and underperforming, so I would argue that we aren't worth what we are charging. And I don't want to be paid more than what is fair anyway.
In a perfect world, cost per customer should be the gold standard. But that is just too difficult to track. With the advances in lead tracking, CPL is the middle man. It has the practicality (almost) of the fee based system with the equity (almost) of a Cost per Customer system.
Personally, I like the idea of being paid what I'm worth, being incentivized to go even further above and beyond than I already do, increased accountability (no performance, no pay), and having the customer feel more comfortable with how they pay.
