What is Lead Generation?
Like affiliate marketing, lead generation is the business of driving potential customers towards another business, often using a website or app with carefully placed links. Much of the attractiveness of this business model is it does not require the person running the business to sell any product or service of their own, they simply draw in the right traffic and direct this traffic towards the business they are partnered with. Unlike the affiliate business model, lead generation businesses get commissions for every new lead they send over to their partner business, as opposed to needing that lead to spend money on the partner business’ product or service.
Lead generation is now a huge industry, and it benefits hundreds of thousands of small businesses that do not have the time or manpower to generate their own stream of qualified leads. It is an industry that many first-time entrepreneurs are able to make a success of due to the relative simplicity of the business model and the low barriers to entry. With some initial research, some copy writing skills and some rudimentary knowledge of how websites or apps are set up (which itself can be outsourced) one can build and run a successful lead gen business.
In this article we are going to look at some of the key things you need to know to set up and administer a successful lead generation business. If you are contemplating acquiring a lead generation business, we also recommend becoming familiar with lead generation due diligence. We also sat down with an entrepreneur with extensive experience in this area, Steve Piper, to hear his recommendations for others looking to get into or expand their efforts in this space.
1. How to Find the Right Sector?
Choosing the right niche for a lead generation business is the single most important factor dictating the future success of your business. There is an almost infinite number of business niches you could focus on, but it is imperative that you choose a niche that you feel you already have some understanding of. One of the main ways you will be driving traffic to your website or app is through the generation of content that will be discoverable via search engines. Choosing a niche that you know little about will make producing or qualifying this content much harder.
It is also extremely important that you assess the competitiveness of the niche you are interested in. It is possible, for example, that you know a lot about farming equipment or dentistry, but there are likely to already be many lead generation businesses not only sweeping up traffic on relevant search terms for these niches but sweeping up potential clients too.
You should aim to find a niche that is specific enough to lower the amount of competition, but not too specific to have few businesses who require your lead generation services.
You should also consider the value of the leads generated for your potential niche. If you designed a website that drove people towards old-fashioned sweet shops, the value of the leads you were generating would be low, as most people purchasing items from these shops would likely spend less than $30. If, however, you were driving people towards businesses selling expensive farming equipment, then the value of those leads would be much higher, and your clients would pay much more for each lead generated.
2. How to Build a Lead Gen SEO Strategy?
While acquiring leads organically through search engine traffic is not the only way to generate leads, it does present one of the most popular and low-cost methods of lead gen. It is important to understand that creating relevant content and posting it to your site or app is not enough to drive traffic, and you will need some understanding of SEO and how it helps your content to rank higher in search engine results.
The first thing to understand is that ranking in the first three results of search engine results makes an enormous difference to the amount of people that will click through to your site. (See the chart below)
While most tips on improving your SEO will be the same for any type of online business, there are some things you can do to more specifically aid your lead generation efforts, and one of these is targeting more transactional keywords.
By including the right keywords in your copy, Google and other search engines can direct people towards your content since it is relevant to the search terms they have typed in. However, if you target transactional keywords such as “buy home insurance” as opposed to “home insurance” or “what is home insurance” you are more likely to turn up in relevant search results for people looking to purchase insurance now, who will be more likely to click through to your client’s site. By thinking carefully about your keywords, you can create a more well-oiled lead generation machine with less wasted traffic and a lower scrub rate (see below).
3. Understand Monetization
Unlike the affiliate business model where affiliates usually work on a cost-per-sale business model, lead generation businesses usually work on a cost-per-lead model. How these leads are qualified will vary based on your agreement with your client, but it will usually depend on the lead filling out a form on the client’s site or yours, therefore becoming a “lead”. It is also possible that performing an action on the client’s site might also qualify the lead, such as clicking a certain call-to-action or visiting a specific page, but this would have to be made clear in any contract between the lead gen business owner and client.
Not having to ensure a sale is completed puts more pressure on the client to ensure that the lead ultimately converts into a paid customer, but it will be the lead gen business owner’s responsibility to make sure that the leads that arrive on the lead gen site do sign up and become a lead, which will require the lead gen site to attract visitors who are likely to have a real interest in the client’s product or service.
It is important to remember that you have a lot of freedom in the type of contract you agree to with your clients. Many people paying for lead generation services are happy to pay a monthly retainer for your services if they feel that you will provide consistent leads to them at a reasonable rate.
4. Understand Scrub Rate
If you operate on the common lead generation business model of being paid for the number of leads you send over to your clients (as opposed to being on a retainer) then you need to understand the “scrub rate” and how it can affect your revenues.
Scrub rate is simply the percentage of leads that a client does not purchase from you. So, if you send over 100 leads, and the client only purchases 70 from you, then the scrub rate is 30%. The client can choose to reject leads because they feel the leads are bogus (have fake contact details, etc.) or simply are not right for their business – i.e., the lead generation business was in error for sending them over. The effect of a high scrub rate is a lower CPL (Cost Per Lead) for the lead gen business. This can be important if you ever come to sell your lead generation business, as this will be a key metric that a potential buyer will want to look at.
5. How to Renegotiate Rates Once You Have More Traction
Once your lead generation business is up and running and your clients are continuing to use your services month after month, it will be worth considering renegotiating your rates. This is always a tricky subject to broach, and there is a possibility that any increase in your rates could cause your customers to move to a different lead acquisition model, or to find a new lead generation business. That is why it is important to assess the relative strength of your business, its uniqueness in the market and how competitive your rates are compared to any potential competition.
If you have established that there is due course to renegotiate your rates, you will need to proceed cautiously. It is best not to raise the issue of fee renegotiation in isolation. It can be brought up in a more general meeting about your services, perhaps during a more general review. It is important to keep the conversation on the topic of the “value” of the service provided, beginning by assessing whether they are happy with the current service. If they do agree that the service has been valuable, then you can discuss the initial assumptions you made in terms of the workload required to procure leads for their business.
If you can show that the efforts required to procure leads are greater than initially expected, then this is a very reasonable motivation for asking for approval for an increase in your fee per lead. It is important that you help your client to understand the reasons behind any request for a change in fees, so you should be prepared to explain yourself. It is imperative that you do not give the impression that you are raising your fees simply because you can.
6. Vanity Links and Special Perks
Once you have established good business relationships with your clients, it is worth considering how you might be able to leverage these relationships into a more profitable and mutually beneficial contract. Depending on the structure of your website or app, and any other assets you might have like email lists or social media channels, you can offer extra exposure to your clients for a fee.
Having more prominent spaces on your site reserved for special clients can be a way not just to increase your billing but to maintain longer-lasting business relationships. If, after 6 months of collaboration, your clients’ links were automatically moved into more prominent positions on your site, boosting the number or quality of leads they receive, this could make your service offering seem more competitive.
Assessing what special perks your business might be able to offer will take some creative thinking, and these offers can be experimented with over time. Finding creative ways to upsell to your clients could make the difference between a moderately profitable and very profitable lead generation business.
Additional Opportunities to Explore
We spoke with Steve Piper, founder of LeadHub, a digital marketing agency that specializes in lead generation, about his experience in the space including his efforts building and scaling lead generation businesses. He recommends that entrepreneurs consider the structure of their business while paying close attention to the financials, especially if they are contemplating an exit down the road. He explains, “It’s best to have everything in one bank account that is exclusive to that business. This streamlines the process and enables you to access information faster. Additionally, the more you can have set up on a direct debit the better. It’s much easier from a bookkeeping point of view. I’d suggest that others take the time to set this up.” Lastly, Piper noted that there is an abundance of opportunity in the lead generation space. His advice: Take action now, don’t procrastinate.
If you would like to know more about lead generation businesses and how they are valued, or if you are looking to sell your lead generation business, please contact the FE International Team.