Lessons From A Pay Per Lead Agency

When we started out a decade ago, Sales Higher was a pay-per-lead agency. That meant we only charged clients when they received a qualified lead that was interested in their solutions. And there were no extra costs. 

At the time I didn’t have a ton of experience in B2B lead generation. And starting out as a pay per lead agency seemed like a great way to get the experience I wanted, while keeping clients happy.

Long story short – it worked. And the clients loved it! 

Of course they did. Their marketing expense went from being a fixed cost with a variable return. To a fixed return on their marketing spend.

What’s not to love!?

But along the way I found the pay for performance lead generation model has some limitations. It works fantastically well in some ways. But it creates as many problems as it solves.

So a few years ago I decided to shift new clients to a subscription model.

Maybe it doesn’t sound like a big deal to you. But I was terrified that potential clients wouldn’t be interested. And I was 90% sure we’d have to switch back to a pay for performance lead generation model. 

Well, that was a few years ago so I guess it worked out OK.

Recently, I received a query about pay per lead services. A couple of years have passed since we made the switch so now seems like a good time to reflect on what’s great about the pay per lead model.

And why our clients are better off on a lead generation subscription.

 

The Best Part About The Pay Per Lead Agency Model

Pay for performance lead generation is GREAT for getting new clients. 

Like, it’s seriously easy.

The value proposition is undeniably attractive. We’ll approach your target audience to see if they’re interested. And you don’t pay a penny unless you get good leads. All the lead marketing work is free if you don’t get results.

All clients see is ‘NO RISK‘ and most of them are ready to sign.

Sales Higher provides white label lead generation services to other agencies. And several of them use some form of pay for performance lead generation for this exact reason.

 

Warning: You May Get What You Pay For

If you’re a client looking for a pay per lead provider, just make sure you don’t end up getting what you pay for. 

There are lots of ways a lead generation company can set you up for short-term success. Followed by long-term frustration.

The fastest way to get results is to cherry pick the best data. And then churn through your entire data set in a few weeks. You’ll probably even get a couple of really good leads.

But what happens after that?

Now your best channel for lead acquisition is exhausted. And you need to find a new form of digital marketing to get new leads.

Not ideal.

 

Clients Only Care About The Bottom Line 

When we changed to a subscription model I expected some resistance. Our value proposition was built around pay for performance lead generation. And I didn’t think people would give that up easily.

It turns out I was wrong. Here’s what really happened…

Nothing.

No one cared.

I discovered that clients care about getting high quality leads at a fair price. They don’t really care how that happens. And they don’t mind paying for expert help from an outside agency.

In other words, our real value proposition wasn’t what I thought it was.

 

Creating Perverse Incentives

So why change at all? How does a subscription model create better client outcomes than a pay per lead model?

There are several problems with the pay for performance lead generation model. But one that really stood out was the problem of perverse incentives.

Clients who do everything right are penalized with higher costs. And the ones that do everything wrong are rewarded with lower costs.

Consider these two (real) client examples.

Client A runs a tight ship. She knew her target audience inside and out. And her sales team had effective practices in place to handle leads. For every 100 people she contacted 5 – 6 would express interest and enter her sales funnel.

Client B was a bozo. He didn’t have any clarity about who could benefit from his solution. And he confided later that he just wanted to try out some ideas. He had no reason to believe anyone would be interested. We contacted 1000’s of people and got very few positive replies.

Here’s the thing…

Our cost to build and maintain a campaign is roughly the same across client projects. So why is Client A paying over 50x MORE for the same work as Client B?

It makes no sense!

 

Lead Generation Subscriptions Are WAY Cheaper

At Sales Higher, subscription costs are based on our actual cost, which is easy to calculate. And then we add a small markup.

That’s it, nothing fancy.

With pay per lead, the pricing is a bit more ambiguous. We know what percentage of contacts SHOULD convert. But it’s not an exact science. Some campaigns will convert above expectations, but others could underperform.

That uncertainty means we need to build a risk premium into the pricing.

And that risk premium adds up. If your campaign performs well you can easily pay double or triple what you’d pay on a subscription model. It’s not worth it!

Look at the image above. This client has a meeting booking rate above 7%. That’s HUGE! For every 100 people he contacts he gets 5 to 7 meeting requests.

On a pay per lead model he’d be paying several thousand dollars MORE per month.

In this case a subscription is a MUCH better deal.

 

You Get Twice As Many Leads

On a pay for performance model, clients pay only for new leads. These qualified leads need to match the target criteria, and also book a meeting.

Sounds good!

But what about all the people who are very interested in your solution? But they don’t have time to meet up now. What happens to them?

With pay per lead, opportunities that should be nurtured end up getting lost. They aren’t ready to meet now, so plenty of agencies won’t (or can’t) pass them on to the client.

A lot of amazing leads are like this. The prospect wants some information, but isn’t ready for a phone call. Or they’re interested, but not until later in the year.

This bank of “potential clients” is the future lifeblood of your business. And on a pay for performance model you may never even know they exist. This is a massive additional cost that many clients don’t even know they’re paying.

 

Better, More Engaged Clients 

In theory, it shouldn’t matter whether your clients are on a subscription model or a performance model. At the end of the day it’s all the same, right?

Mostly that’s true.

But I’ve found that our average subscription clients are noticeably better clients. And they’re more fun to work with.

Subscription clients are paying for a service. And they want to make sure they get great value from their marketing spend. They’re as engaged on day 100 as they are on day one.

The best way I can describe it is, ‘they have skin in the game’.

Performance model clients have everything to win, but nothing to lose. And sometimes this means they don’t want to do the hard work required to build a successful outreach campaign.

 

Pay Per Lead Agency Charging Issues 

On a subscription model, lead generation charges are low and fixed. They never change unless the scope of the work evolves. It’s simple, and you don’t have to do anything to bill a client – it’s automatic.

On a pay per lead model the bill varies every month. Which isn’t a big deal until you multiply it by all your clients. Time adds up!

And those extra hours translate into higher client costs.

A much bigger financial issue is trying to decide whether a lead is qualified or not. If the client feels like they didn’t have a ‘good conversation’ with the prospect then they may decide the lead wasn’t qualified. And you don’t get paid.

That may not sound reasonable, and it isn’t. But the client can’t help how they feel, either. 

Margins are tight in lead generation so those ‘no charge’ requests can obliterate your bottom line. Which ends up further inflating the cost per lead for other clients.

 

In Lead Generation, Cash Flow Is King

Smooth, even cash flow is the key to running a successful business. And this holds true for B2B lead prospecting services.

Lead generation requires a heavy investment in tools, data, and people. A full campaign requires several hundred hours of work. And if you don’t have the staffing in place, your lead generation campaigns won’t be successful.

The point is, when you have stable (and predictable) cashflow you can invest in the resources your clients need to be successful.

Pay per lead projects are by definition variable. You can predict how many leads a client SHOULD get. But there’s no way to know until it happens.

On a subscription model you can hire the team you need to get the job done right. Because you know exactly what revenues will look like this month and next.

 

Sorry, We’re Too Busy

One of our local competitors runs a pay per lead agency. And over the past few years we’ve had 4 prospective clients tell us they were going to work with them because they preferred the pay for performance model.

Fair enough.

In every case we wished them well, and didn’t expect to hear from them again.

But in all four cases they called us back within a week. In every instance the company refused to accept them as clients. They said they were too busy. But that’s not what really happened. 

The truth is, none of the projects were ‘easy money’.

The pay for performance lead generation model is awesome for low hanging fruit. If conversions are predictable, so are revenues.

But B2B lead generation campaigns often require deep thought, iteration, and hard work. Which doesn’t lend itself to a variable compensation model.

 

Why Stop Pay Per Lead?

 A few years ago I met with a client who asked me why we stopped doing pay per lead. I think the conversation best summarizes the issues that agencies face.

Client: You used to do pay per lead. It seemed to be going well; why stop?

Me: It was a difficult decision. But when you think about it, the model doesn’t make a lot of sense.

Client: What do you mean?

Me : Well, who chooses what you’re going to sell?

Client : We do, of course.

Me : And who chooses the sales targeting – who you’re going to sell it to?

Client : Well, we do, I suppose.

Me : But we get to decide on your value proposition, right?

Client : No, of course not. We only get one chance to impress our prospects. We decide what we want to say. 

Me : And who has final approval on the email copy?

Client : We do. We need to get the messaging approved internally before we can send anything out.

Me : … ?

Client : Yeah… I get it.

At the most basic level, a pay per lead model doesn’t make sense. The client ultimately controls every meaningful variable that determines the success of the campaign.

Which only makes sense –  it’s their company!

 

Considering a Pay Per Lead Agency?

So how about it? Are you still considering a pay for performance lead generation model? 

As a customer or a lead generation provider? I’d love to hear your thoughts. What’s the biggest benefit? Any drawbacks that you’ve experienced?

Did I miss anything? I’d love to hear your thoughts on anything I missed. You can contact me on Linkedin or send a note on our contact page. 

Look forward to hearing from you!