Flat Fee vs Cost Per Lead

[JoshuaMackens]

I've been thinking about going from a flat fee model in Local SEO to a cost per lead model.

I think there are some massive benefits to a cost per lead model:

1. Makes it much more palatable for local businesses to afford, especially early on in the Local SEO campaign when rankings are slower.

2. Rewards success for Local SEO agency much better than the flat fee model.

3. Incentivizes the Local SEO agency to work much harder and to improve that much more.

I think it's a win-win for both sides. Performance is guaranteed or you don't pay and you can end up making a lot more money on the agency side.

Only cons:

1. Establishing what constitutes a lead - but I don't think this is hard. We use CallRail already and grade calls. The only gray area would be if the receptionist doesn't ask how they heard about us. But if they don't, we would default that to being a lead. We would also count email leads.

2. Establishing a fair cost per lead - this is the one I'm stuck on. For any type of home service industry we could just call HomeAdvisor and Thumbtack and ask them what they charge for a lead in an area and charge 1.5x that (since the lead isn't going to 3-4 people). I'm sure we could find something similar in the legal and health sector as well, right?

So, my questions are:

1) Is anyone doing cost per lead now? How have you found it to work out?

2) Has anyone switched to cost per lead but then switched back?

3) What are some cons I have missed?

4) How would you find a good cost per lead for the health/legal industry and any other industries?

 

[Colan Nielsen]

Hey Joshua,

That's a really interesting question and I am curious to hear what people have to say.

The reason a cost per lead model doesn't make sense to me is because although our job is to make our clients phone ring, there is a lot of additional value that we bring to the table. Your expertise alone is incredibly valuable. So by working with a business to help them grow you are essentially offering a partnership. They now have an expert in their corner to provide ongoing guidance, strategy, troubleshooting, consulting..etc. You give them the time to focus on their business and not have to worry about Google updating it's algorithm 300+ times per year and staying on top of all the new guidelines, features and everything else that comes with staying ahead of the Google knowledge curve.

What I am trying to say is I think a cost per lead model sells your expertise and years of experience short.

 

[djbaxter]

The other drawback for small business at least is that they don't know up front what the bottom line will be for them, which can be a make or break thing for some SMB owners.

I know it's not exactly the same thing, but I have always offered the option of an hourly rate vs. a quoted flat fee for web development and basically no one has ever opted for the hourly rate. They want to know up front what it's all going to cost them.

 

[Tim Colling]

Another thing to consider: while some clients are very engaged and proactive and compliant with your programs, some turn out to be not so much that way. The ones who drag their feet and don't do their part of the work, things like providing contact info for prospective reviewers, for instance, may end up causing you to never get paid enough in lead fees to cover your up front cost for starting up and training them on your tools and practices.

 

[mborgelt]

One thing to keep in mind is that not every market grows consistently or has a frequent buying cycle so leads may be harder to get in the long run and you may have to change your pricing accordingly.

Tim makes a great point about client accountability. A lot of lead generation requires client input/participation and if the client isn't responsive that can serious hamper your effectiveness. Maybe having some sort of clause around that would help you from getting burned there.

I think focusing on lead gen as opposed to vanity metrics is great for the client and the agency. It helps establish clear goals and expectations and the client actually gets ROI as opposed to simply ranking #1 for "X" search term.

I definitely think you are on the right path and am very interested in the solution you come up with!

 

[JoshuaMackens]

Hey Joshua,

That's a really interesting question and I am curious to hear what people have to say.

The reason a Cost Per Lead (CPL) model doesn't make sense to me is because although our job is to make our clients phone ring, there is a lot of additional value that we bring to the table. Your expertise alone is incredibly valuable. So by working with a business to help them grow you are essentially offering a partnership. They now have an expert in their corner to provide ongoing guidance, strategy, troubleshooting, consulting..etc. You give them the time to focus on their business and not have to worry about Google updating it's algorithm 300+ times per year and staying on top of all the new guidelines, features and everything else that comes with staying ahead of the Google knowledge curve.

What I am trying to say is I think a CPL model sells your expertise and years of experience short.

I understand what you're saying, Colan. At the end of the day though, our expertise leads to an increase in ranking and therefore leads or it doesn't. If we have a high expertise, we will have high rankings, and therefore high leads and our expertise is rewarded. For those with less expertise, they will be rewarded according to their expertise. Which is how it should be anyway, in my opinion.

Would you agree or disagree with the above?

The other drawback for small business at least is that they don't know up front what the bottom line will be for them, which can be a make or break thing for some SMB owners.

This is the one drawback that's been hard for me to get around.

What if business starts going insane for them and they can't keep up? They will not want to continue paying per lead if they can't service that lead. HVAC companies come to mind. Our HVAC company this year was slammed and backed up for weeks. They would have someone call in and as soon as they heard they were out a few weeks, of course they called someone else. I understand they don't want to pay for that lead but they would have to be charged for it.

I've come up with some creative ideas on how to get around that but nothing that I feel like successfully eliminates the issue entirely. I think if a client had that objective right now, my reply would be, "If you're worried about that problem, that's a good problem to have, right? Being fully booked is better than the alternative, correct? I think if that's the problem you eventually have to face, you're going to be one happy customer."

That's about all I have to smooth it over currently.

Creative ideas include:

- Fee cap
- Divert calls to another company

Any other input would be awesome!

Another thing to consider: while some clients are very engaged and proactive and compliant with your programs, some turn out to be not so much that way. The ones who drag their feet and don't do their part of the work, things like providing contact info for prospective reviewers, for instance, may end up causing you to never get paid enough in lead fees to cover your up front cost for starting up and training them on your tools and practices.

Definitely agree with this. However, the only input we need from clients typically is emails. We've been pretty successful getting emails from clients and i don't expect that to be a problem. Also, if that's a problem in CPL, it will be a problem in Flat Fee as well, because if they aren't getting you those things, you can't produce, and if you can't produce, they won't sign back with you anyway in Flat Fee. This is an inherent problem to Local SEO in general I think, not just CPL model. Although, I do agree with you that it does hit the CPL model slightly harder. But I think it's worth it (for reasons I detail at the end).

One thing to keep in mind is that not every market grows consistently or has a frequent buying cycle so leads may be harder to get in the long run and you may have to change your pricing accordingly.

Agreed.

I do think though that if the market can't sustain CPL, it can't sustain Flat Fee in the long run, at least if there's a savvy and responsible business owner at the helm. If there is, he should be calculating cost per customer acquisition from Flat Fee Local SEO and deciding whether he can live with that or not anyway.

And I think that's what we all really want anyway, right? We want to charge what's fair and what works. I hate it that some of my clients don't calculate their ROI on SEO. I sometimes wonder (with one client in mind particularly) if they are even getting the value that they're paying for in terms of leads. I think they are but without them crunching the numbers, there's no way to tell. Now, ultimately, it is the client's responsibility to figure out whether the SEO is working for them or not. However, CPL fixes this problem entirely.

Ultimately, none of us want to be charging for something that isn't working. CPL gives peace of mind to both sides. It either works and you pay or it doesn't and you don't. It also allows the Local SEO company, based on the figures I've initially calculated, to make a lot more money on the back end when Local SEO really gets going. This is what I'm most excited about. For example, we produced a ridiculous amount of leads for our HVAC company this summer which I mentioned earlier. In their best month, based on a CPL model with an extremely conservative cost per lead estimate, we should have made 5x what we actually charge per month. The next month was the same. We should have made 83% of what we charge annually in those 2 months. A CPL model allows this.

It could also eliminate the uncomfortability on the front end of a Local SEO contract for the local business when cost is high but leads are low. This should lead to a higher conversion rate for sales. Almost anyone should be willing to sign up for a performance model.

This also leads to you being able to charge more because, if you're like me, you don't try to charge as much as you should per month because in the beginning of the SEO contract, charging the max that an SEO campaign would be worth at the height of said campaign would be really hard to sell to a business owner. They're paying max SEO campaign costs for less than max SEO campaign results. With a CPL model, this isn't an issue.

I think CPL would easily be the superior model (besides customer acquisition if you could track that, which you can't) if you could nail down the lead tracking to 100% accuracy. With call recording, I think we're pretty close, although not 100%, maybe 90%, which I think is enough to make this work.

Thoughts?

 

[JoyHawkins]

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.

 

[gyitsakalakis]

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!

 

[adammaxum]

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.

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.

Issues in my opinion could / would be...

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?

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.

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.

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.

5. If I'm going to rank a website and generate leads, sometimes it makes sense to just own the site itself and then sell those leads or rent out the website once you've gotten it to the point where it is producing leads. This way you own the asset and can make a sale/relationship even faster with a business in that geo/industry because you have leads coming in already.

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.

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...

 

[JoshuaMackens]

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.

 

[Yan Gilbert]

At that point you become a lead generator and I think that model works better with simpler funnels when you can measure exactly where customers have come from. Works great for online businesses as affiliate marketing, but real word is a bit messy. Even with all the tracking that is possible, it still is difficult sometimes.

Trying to come up with what seems fair to you, then explain and negotiate this with different kinds of business owners would not be efficient nor easy.

..what happens when your client in Florida closes down for a week or two because of a hurricane?
..what happens when the business reduces hours for the summer, or closes for two weeks for Christmas?
..what happens when the business owner does a special event in the community
(without you involved) and gets lots of extra traffic..how do you count that?

There are too many variables that will impact the number of leads that come and how much you get paid. Even with a long contract that averages out those down turns, I think it would still be difficult managing cash flow properly.

Not sure, but with long contracts, ultimately either you or the business owner will get resentful because something won't feel fair 6 months down the road.

As Gyi said, its probably ok within limited circumstances with sophisticated clients, but if you take a step back and look at how things are done, there must be reasons why even the most scuzziest agencies to the most professional agencies use the flat fee model. Everyone gravitated to this model over time because it works best for both parties.

 

[Colan Nielsen]

Great point by everyone! Lots to chew on here.

To reiterate my original reply I want to emphasize that we should try and remember that our clients are paying us for the value we bring to their business. And the value in my opinion is much greater than ONLY the form fill or phone call.

CHEESY ANALOGY ALERT: Your doctor doesn't always find the exact ailment that's causing you to be sick every single time you fall ill. Sometimes they even misdiagnose but just knowing that you have an expert in your corner who will do everything in their power to keep you well is a tremendous value in and of itself. We are doctors (SEO's) who are constantly diagnosing and prescribing solutions. And there are times when they don't work but that doesn't take away from the value you bring to the table.

 

[JoshuaMackens]

Thanks for weighing in, Yan!

..what happens when your client in Florida closes down for a week or two because of a hurricane?
..what happens when the business reduces hours for the summer, or closes for two weeks for Christmas?
..what happens when the business owner does a special event in the community
(without you involved) and gets lots of extra traffic..how do you count that?

In the first two examples you could just stop counting the leads. The generation we've done the other 50 weeks out of the year, if we've done a good job, should more than compensate.

The last example, those calls shouldn't come through the tracking number unless it's via the GMB page. If it is, listening to the call while the front desk person asks, "how did you hear about us?" will solve that.

Not sure, but with long contracts, ultimately either you or the business owner will get resentful because something won't feel fair 6 months down the road.

I do think this is a concern. Thanks for bringing it up! I think this is probably the biggest issue because it's essentially the same as, "eventually, the cost will be too high". I'm working on a solution for this as it seems to be the only drawback so far in my mind.

As Gyi said, its probably ok within limited circumstances with sophisticated clients, but if you take a step back and look at how things are done, there must be reasons why even the most scuzziest agencies to the most professional agencies use the flat fee model. Everyone gravitated to this model over time because it works best for both parties.

I agree with you, over the years everyone has used Flat Fee. At some point though, there's a tipping point with technology (lead tracking ability) and I think that time might be now.

 

[John Vuong]

As a digital agency you want to build relationships with clients and therefore you don't want to just become a lead generator for them. Invoicing becomes very difficult to project/forecast, difficult to scale, how do you know the average per lead (based on average sale or average lifetime value of the customer), what constitutes a lead even if you have each call recorded (challenge of receptionist not answering properly, answering machines, etc.)

Clients would love to work for any agencies that provide pay per performance. I'm not sure how sustainable of a business model it is for the agency. There is a ton of effort in signing a client up, then getting them ranked before the client starts to get leads and then you start collecting. Again not all leads are created equal and how can you ensure you get paid for all leads, versus just the quality leads the business owner wants to only pay for?

A couple years back I worked with a few clients that were buying leads in both the insurance industry and mortgage industry from lead generator companies. Things to consider are these lead generator sites tend to resell there list of leads, the quality of the leads are hit and miss, you create a bidding environment for the business owner to choose the lowest company that calls them. I've learned to stay away from any lead generator company since you don't know where they are getting these leads from.

Don't reinvent the wheel, just do what has worked and just do it better than anyone else out there in your local market.

 

[JoshuaMackens]

Hey John, thanks for weighing in!

As a digital agency you want to build relationships with clients and therefore you don't want to just become a lead generator for them. Invoicing becomes very difficult to project/forecast, difficult to scale, how do you know the average per lead (based on average sale or average lifetime value of the customer), what constitutes a lead even if you have each call recorded (challenge of receptionist not answering properly, answering machines, etc.)

Clients would love to work for any agencies that provide pay per performance. I'm not sure how sustainable of a business model it is for the agency. There is a ton of effort in signing a client up, then getting them ranked before the client starts to get leads and then you start collecting. Again not all leads are created equal and how can you ensure you get paid for all leads, versus just the quality leads the business owner wants to only pay for?

A couple years back I worked with a few clients that were buying leads in both the insurance industry and mortgage industry from lead generator companies. Things to consider are these lead generator sites tend to resell there list of leads, the quality of the leads are hit and miss, you create a bidding environment for the business owner to choose the lowest company that calls them. I've learned to stay away from any lead generator company since you don't know where they are getting these leads from.

Don't reinvent the wheel, just do what has worked and just do it better than anyone else out there in your local market.

We are a lead generator. No matter what we do, that is the essence of who we are. With that being said, anything outside of lead gen in a flat fee environment can also be done in a CPL environment. It's the same. Value for value.

I think we've got the invoicing figured out on how to charge, how much to charge, etc. I don't anticipate it being an issue as of now. I'm not quite ready to go CPL yet but I will report back with my findings when I do.

Based on the math I've done, as I've mentioned above, CPL actually leads to a much higher revenue. I would say it's close to 2-3x what we charge currently, and we charge a good amount already. This is based on the numbers I ran on our HVAC client and our past performance for him. So, I think the model is very sustainable as long as we can figure out the issue of high cost, which I'm not sure is an issue. If you're making 2-3x more on average, as is potentially the case for our agency based on our calculations, then we can probably afford a cap which offsets the concern over high cost.

I think buying leads where there is a cold call is much different than warm leads. Especially warm leads from Local SEO which tend to be the warmest leads besides referrals. Leads from SEO seem to be pretty set on using the company they call, having more than likely already done a lot of research on them and choosing them over any competitors. So there would be no competition there really with traditional lead generation companies. No one is doing what we're talking about.

While I agree not reinventing the wheel and doing the wheel better than anyone else can lead to success, that doesn't lead to breakout success. At some point, break out, exponential success takes innovation. And that's the discussion I wanted to have here. Doing something no one else has done before.

I think CPL is by far and away the fairest business model for both parties (besides cost per customer, which is more or less impossible at this point). It's just about whether both can find a common ground they're happy with in the agreement. I think that is able to happen with successful tracking.

And I think it is possible we are finally at that tipping point where CPL can thrive.

We will see!