There is a noticeable trend towards performance based marketing and lead generation sits at the forefront of this trend. So why is it that there is still some apprehension by many advisers to use lead generation as a major source of new business?
Suspicion of Cost Per Lead
Lead Generation as a form of marketing is often defined by the fact that lead buyers and lead sellers transact on a Cost Per Lead (CPL) basis. This may seem rather innocuous but for many advisers the very fact that they would have to pay on a per lead basis is the main cause for suspicion about buying leads. That somehow, lead generation stacks the deck against them. However, this is a misconception of what lead generation is and the reality couldn’t be further from the truth. If you look at the evolution of lead generation, much of the momentum to establish lead generation on a cost per lead basis has come from advertisers to ensure they get value for money and make their spend more accountable and performance related.
This can be seen clearly by putting CPL in the context of the alternatives. Rather than something to be suspicious of, it is quite easy to see how this actually represents the perfect shared risk model for media owner and advertiser and delivers the most value to both.
At one end of the advertising spectrum you have advertisers paying effectively for space on the media owner’s website, magazine, directory etc. This type of scenario is great for media owners as they don’t have to worry about the performance of the inventory or success of the advertiser. As long as the advertisers keep booking the space each month there is no incentive to try to improve what they are doing
While this is good for the media owner, this is often not such a good deal for advertisers as they are taking all the risk with no guarantee of results and that’s not just no guarantee of any conversions but absolutely no guarantee of any enquiries either from their spend. Many advisers will no doubt have experienced this by placing an ad in the local yellow pages or equivalent, spending hundreds of pounds and getting nothing back in return.
At the other end of the spectrum is working on a pure revenue share where the advertiser pays nothing upfront and only gives the media owner anything back once leads have converted into written business.
This of course is a great scenario for the advertiser as not only is there no initial outlay which is good for cash flow but the advertiser only pays on results so there is minimal risk for the advertiser. Unfortunately, this often a raw deal for publishers for a number of reasons. Firstly, they have to rely on the advertiser to be able to convert the leads. They might be delivering a large quantity of good quality leads but if the advertiser can’t convert them then the media owner gets nothing. The other issue for media owners is that in this scenario they lose control of the very process that will result in them getting paid and they have to rely on the advertiser to be totally transparent about conversions and payouts. They also have to rely on the advertiser to have robust and up-to-date reporting to be able to track sales. The other main issue is that for many products (especially in the financial services industry) the sales cycle can be weeks or months which means media owners will have to wait a long time for payouts.
Right in the middle of both these models is the Cost Per Lead (CPL) model where media owners only get paid for what they deliver to the advertiser and advertisers only pay for interested prospects. To this end CPL represents a good shared risk model for both media owner and advertisers. Over the last few years additional levels of complexity have been added on top of this basic model which often work in the advertisers or lead buyers favour. For example, real-time technology can be used to screen out many invalid enquires which means that advertisers don’t just pay for leads, they pay for valid leads. In addition, lead buyers can also apply for refunds for leads such as wrong phone number which again means they only pay for genuine enquiries
There is also the ability for end-to-end tracking where publishers and advertisers can see exactly which leads perform the best from which sources which enables advertisers to pay more for better performing leads. This leads to a scenario where the incentive for the media owner is to generate good quality leads for the advertiser as ultimately they will make more money. These dynamic processes drive the market towards an ever increasing march to quality as this benefits media owners and advertisers
One other thing to note is that there is a lot of evidence that rev share doesn’t necessarily work out in the advertisers favour. Where leads are effectively free, this often acts as a disincentive effect for the lead recipient to maximise the value of each lead as whatever the outcome they can just move onto the next lead. Many sophisticated lead buyers prefer to pay on a CPL basis even when given the choice as they want to keep all of the up-side.
In the end, as with any form of marketing, there are always companies that do better than others but the important thing to note is that of all the hundreds of factors that determine success and failure paying on a cost per lead basis is not one of them.
Justin Rees is director of marketing and partnerships at LeadPoint UK. Follow Justin on twitter at @leadpointuk