I continue
to be amazed at the lack of sophistication of so many of lead buyers. Across the majority of companies and
verticals I work with, the majority of lead buyers continue to pay roughly
twice as much for a lead that converts twice as well (as a benchmark). Or half as much for a lead that converts
half as well, for that matter.
As has been
noted by a growing number of my peers in my discussions with them, lead buyers
and their respective call center operators continue to ignore the variable cost
of calling leads, and tend to leave this out of there equation entirely, except
for some consideration to a minimum acceptable lead conversion percentage below
which they typically won’t buy leads at any price.
See the
example below as one that helps illustrate my point. This is how most lead buyers seem to think:
|
Source
|
Lead conversion ratio
|
Cost per lead
|
Cost per sale
|
|
|
A
|
1% of leads turn to sales
|
$20
|
$2,000
|
|
|
B
|
4% of leads turn to sales
|
$80
|
$2,000
|
|
As you can
see, in both cases they are generating what buyers think is a $2,000 per sale,
and think lead sources A and B aappear equally good for their business. Let’s instead consider a variable “cost per
call”, the cost a call center incurs in calling lots of leads that do not turn
into sales. I think a $10 (fully-loaded) cost to call a lead is reasonable in many scenarios given most leads require many call attempts, and often multiple contacts and conversations.
|
Source
|
Lead conversion ratio
|
Cost per lead
|
Cost of calling leads (per sale)
|
Truer cost per sale
|
|
A
|
1% of leads turn to sales
|
$20
|
100 leads per sale * $10/called lead = $1000 add'l cost
|
$3000
|
|
B
|
4% of leads turn to sales
|
$80
|
25 leads per sale * 10/called lead = $250 add'l cost
|
$2250
|
The truth
of the matter is that source B is a lower real cost per sale for this
company. While the cost of the leads
“per sale” is the same, the call center costs are much greater for sources that
provide lower lead to sale conversion rates.
----Quick additional
thoughts----
In
industries and companies that have high call center / per call costs, this
concept is much more important. If your
company has highly trained and paid salespeople manning the phones, you
probably only want the best leads. If your
call center operation works OK with $10 per hour coolies, the cost of calling
leads may not be large enough to move the economics much.
Qualified
in-bound calls, and qualified call transfers (also called warm transfers, or
hot transfers) appear undervalued in the marketplace. Because the company is not burdened with calling customers that
don’t pick up or don’t meet certain basic requirements, the acceptable “cost
per contact”, or cost it takes a company to be on the phone talking with a
reasonably good candidate, they should be willing to pay more “per contact”
when calls are generated, as opposed to when they are just handed leads they
have to call.
This is one
of the reasons that as certain lead industries continue to mature, I believe
the cost of hot transfers will rise (as customers realize their true value),
more call center operations will be split into two pieces (either inside one
company or with two separate companies coordinating) to separate the initial
qualification of the lead via an inexpensive caller and the follow-up with
interested parties with a more experienced rep.
This
is also one of the reasons I am fired up about what some companies like Double
Positive are doing – helping the market monetize average quality leads turned
into highly qualified call transfers – by providing the initial call center
operations themselves. Lower conversion rate lead generators like Aptimus should pay attention, as buyers in some of there categories mature.
