How Much Should You Be Paying as Lead Buyer?

Every time a potential customer comes to us for lead generation, first thing they ask

 

We would much rather have them say

 

But of course, this picture is ridiculous because we all know… Fry from Futurama never has money.

*ehem*

 

But let me give you little more CONCRETE answer…

The answer is: IT DEPENDS.

 

 

You Gotta Know Your Numbers

You’re in business, or at least in sales.

If you don’t know your numbers, you are dead in the water.

There are two numbers you need to know:

  1. Your closing rate – This is your ability to take a potential lead through the sales process AND have him/her give you money.
  2. Your net margin – This is gross revenue  minus COGS, or cost of goods sold. This does NOT include salary, overhead, taxes, insurance, blah blah.

(The reason you cannot include salary, overhead, etc. is that those are VARIABLE costs that can be improved, or worsened, with your negotiation and management skills.)

 

Ok, head hurt yet?

<sarcasm>This should make it better</sarcasm>

 

Break Even Analysis

Ok, gotta know your math:

 

 

Let’s use a real life example.

Suppose you sell solar panel system.

Since they’re fairly pricey and insanely complicated to install, most people look to professional solar panel installation to have them installed on their roofs. (or is it rooves…)

 

Let’s say your net margin is about 2k per installation.

And your sales person is at about 10% closing ratio.

In another words, for every 1 in 10 interested  leads, the company will net $2,000.

 

Now, what is the MAXIMUM this company can pay for an interested lead to break even?

Think…

 

Yes, the answer is $200.

The formula is this:

MAX cost per lead = NET margin x Closing Rate

So if your closing rate is 20% (or 1 in 5) for the same scenario:

 MAX cost per lead =$2,000 x 0.20 = $400

 

But of course, NO one in their right mind wants to break even.. but this gives you a GUIDELINE of what is the MAXIMUM you should be paying.

 

It’s not simple math

OK, now I that gave u a fantasy story, let me give you a couple of other factors that you MUST think about.

 

1. Quality of leads

It shouldn’t come as a surprise that quality leads come from quality lead generation companies.

Lead selling/buying is a very trust based transaction – kind of like a hiring a nanny.

Would you trust this man to be your kid’s nanny?

Probably not.

Would you trust some random international company who offers you leads at $5 per pop over an unsolicited linkedin message?

(That was a trick question.)

 

2. Seasonality

Believe it or not, ALL businesses are seasonal.

For example, in most states, solar companies do better in the summer.

Why? Simple: using air conditioner = higher electric bill = pain.

You’ll notice that your closing rate will vary based on which time of the year.

 

3. Exclusive vs. “Shared” Leads

Sharing is caring.

Unless of course,  if it’s your spouse, your car, your email password, and yes, your LEADS.

 

 

The way most lead generation companies make their money is by selling the lead a couple of times.

Let’s do the math: a lead generation company offered to sell their leads at $50/lead.

But when I looked at the vertical, these companies were paying at LEAST $10-15 per CLICK on search engines.

 

Assuming that they signed up 1 out of 10 visitors (which is insanely phenomenal), their cost per lead is $100-$150.

How can they be offering you the lead at $50 when it costs them two to three times that?

Easy, they just sell the same info 3-5 times.. sometimes as much as 20 times.

 

We, at Solar One Media, do not engage in that because we’ve been on the buying side of these oversold leads.

We ONLY deliver exclusive leads. Yes, they might be higher, but you’ll be the ONLY one getting them.

(In certain verticals, we work with ONE company.)

 

4. Last but not least.. and quite the MOST important, YOUR SALES TEAM

Simple fact of life: if your sales people can’t sell, no amount highly qualified, highly intentional (i.e. to buy) lead will help you.

No lead generation company can help you with this.. you have to work it internally.

 

 

taewoo

taewoo

TaeWoo is founder of Solar One Media, a solar lead generation company. With 10+ years of experience in internet marketing, web development, and online advertising, TaeWoo brings his expertise and pioneering spirit to solar lead generation.

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