$200 into $4,000? Local Lead Generation Can Be Very Profitable September 1, 2009
Posted by Andrew Wee in : affiliate marketing , trackbackIf you’ve embarked on the affiliate marketer route, you might already be very successful with pay-per-sale, pay-per-lead/pay-per-action, and maybe even the new-fangled pay-per-call business model for a network or merchant-direct program. But are you awesome of the awesome profit potential of lead generation for local businesses?
There’re a number of marketers who’ve shared their experience in this space:
- Jeremy Schoemaker “Shoemoney” covered a case study for a local Chevy dealership including the creatives and analytics for the campaign
- “CDF Networks’” Chad Frederiksen covered some of the elements of a lead generation business
- Dennis Yu had a guest post by Gerald Neo “How to grow your SEM business in Asia“
Taking an example. If you got a $100-200 payout for a finance-related lead, at a cost of $30-50 in lead generation costs, which works out to a 275% margin. Which sounds attractive.
However, the finance service provider might make a commission/profit in the magnitude of $1,000 to $5,000 on the customer, about a 19,000% gross margin. Factoring in a 20% default rate and operating expenses of 30%, the customer value is a healthy $1,500 (assuming the provider manages their risks prudently).
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So if you’re an affiliate, would you prefer to make a $150 commission per lead or $1,500 per customer?
Just remember that a number of CPA affiliates who’ve tried to go down this route have given up because of the extra administrative and operational effort that is involved.
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I’ve been coaching a client in the real estate industry about the mechanics of lead generation and he recently spent $200 in a test PPC campaign, which generated 8 leads, and resulted in 1 conversion translating into a gross profit of $4,000.
Aside from his costs, his time spent was marginal, so he’s coasting at about 19 times ROI.
Note: this was a test campaign, so you should not go out and extrapolate a linear ROI from starting a $5,000 campaign.
However, he applied a number of points which led to the success:
- GeoTargeting to a specific location: Face-to-face business transactions are almost always more valuable than ones which you hand off to an Internet-based merchant/services provider.
- Highly targeted: The campaign was geared towards one specific demographic – income, value of real estate, position on the buying cycle.
- Pre-qualification: Even with the demographic locked down, he offered a paid informational report to pre-qualify the lead. This resulted in 8 prospects who had bought the report.
- Face-to-face closing: As he was in the same geographical area as his prospects, he met up with one individual and closed the transaction.
Note: unlike the example above, you don’t have to take on a local lead generation campaign from start to finish, and instead work with insurance agents, realtors, service providers to hand the leads off to. Contacting a local partner, having an agreement in place, and periodically auditing the process to ensure that all leads are being tracked accurately, can be a very profitable income stream to complement your existing efforts.
One line in the Dennis Yu guest post bugs me though “To many SEM specialists, this is a golden opportunity. But then, they have to realise that Singapore is a small market. And it cannot sustain their ROI, just by focusing on one market alone.”
Given that Singapore’s GDP is $240 billion (2008 estimate) and is ranked 46th in the world, with a stock of money rated at $52.57 billion (31 Dec 2008) [Stats from CIA World Factbook]. I can’t help but feel that guest poster Gerald Neo either is pretty naive, or didn’t do his homework. Hopefully, it’s the latter.
Choosing one of the industries listed at the Economic Development Board of Singapore’s industry sectors, such as Aerospace, Petrochemical, Alternative Energy, Biotechnology, or Microelectronics can potentially be a business worth a couple of million dollars. That’s anything but a “small market”.
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Interested in lead generation? Check out my review of Chad Frederiksen’s Local Lead Plan.
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I see a lot of CMS and LMS (lead management systems) like leads360 but where are the off the shelf solutions for a lead gen company to collect and distribute the leads to local clients?
Scaling this seems possible but only with a proper backend in place. I just don’t want to string together seperate pieces of software to have them all talk to each.
Any suggestions?
I’d use excel or another spreadsheet to track on a simpler level.
If you’re very focused on lead gen, then a web-based system like SalesForce.com is something that a number of my contacts use.
Higher up the chain, you’d have the ERP (enterprise resource and planning) solutions that the big corporates use. It’s going to be pretty pricey, so something that’s web-based like MySAP.com (from ERP provider Germany-bases SAP AG) might be a good fit. Else you’d have the other stuff from Oracle, PeopleSoft, etc.
Hey Andrew this something all affiliate marketers should start looking at.
I have started looking in to this as a new opportunity for my self, What lead management software with CRM do you recommend for this?
Hi Jack,
I provided some options in the answer above.
Again, I’d suggest having either one big client, or a number of smaller clients before going out and investing a bunch of systems right off the bat.
Great post Andrew! The only thing with this is how do you usually charge the client and how do you determine what to set the CPA cost at?
Would you do some kind of a test for the client, then determine the CPA cost? Then would you ask for the money up front or what?
There’s a lot of ways you can set up your payment model for your lead generation business, but what do you think would be the best for both you (lead generator) and the business you are generating leads for?
In my opinion, a lot of it has to do with the relationship you have with the client. In many cases, I know a number of marketers in the lead generation business start off with a business they’re already doing business/buying services from, or a friend/relative who has an existing business (probably more brick-and-mortar based and isn’t leveraging the internet much – or if they do, it’s probably a 5 or 10 page static HTML brochure-type site).
Like Shoemoney was saying in his post, the better clients will be ones who have their numbers – cost per acquisition, customer lifetime value, customer lifespan, ARPU (average revenue per unit) worked out. These organizations tend to be sales-focused – like real estate, financial services, car dealerships, golf country clubs, casinos, high end product retailers – eg: private aircraft, sports cars.
If they know their customer acquisition cost, usually as an online-based lead generator, you should be able to acquire the lead for a lower cost.
I’d look at some lead generation material from marketers like Dan Kennedy, Joe Sugarman, Jay Abraham for a business model.
Your other questions about getting an advance, charging, payment terms, etc are all tied in to your business model.
I looked up the names you mentioned for a business model, but none of the books I found had to do with a business model.
Care to share what books write about this? Thanks.
The books I mentioned have to do with direct marketing, and as far as I know, no book will give you a lead generation business plan. Even if they did, it would have to be customized for each niche.
You kind of have to set this one up yourself. No book that I have found has been of specific help for this, but any affiliate should know what to do anyway.
The other way to do it is simply to research what other’s are charging for the same type of leads. It is very unlikely that you are going to be the only person in the world offering a specific type of lead. Look online or call up and find out what your competitors charge. Then price yourself accordingly.
Yeah, I’ve recently had this type of opportunity (send leads to a company’s website to earn commission on conversions) and also want to do a Geotarget website in my city to generate leads for a variety of local businesses…
But the stymied part is how to ensure I get paid for all the leads I send them that convert. “Trust but verify” is the Russian proverb that comes to mind.
Best I can think of would be an online form that gets sent to both me and the business, and then audit some of those individuals to determine who converted and cross-check to see if I actually got paid for that conversion.
Although that’d be a pain to do (could outsource it I suppose) and still sort of hit or miss…
You’re selling leads. Not sales, so you don’t have to verify, audit or cross check. If you send a lead, you get paid. End of relationship.
You know, everything I have read about local lead gen online always has someone noting how difficult it would be to track everything. It perplexes the shit out of me why such people even consider going into business.
@Steve – if you’re concerned abt getting paid for the leads you’re sending over, you should have the leads come to you, then you pass them to the client.
If you’re being CCed and the client gets the leads, you’re setting yourself up for problems.
Like Rob was saying, if your duplicate/bad leads are getting scrubbed, it’s on a performance basis, vs lead gen.
To make this business work (automated) you need a script written that you can upload to your lead gen website … in order to automate the process of e-mailing leads (forms that have been filled out) to your client(s). I have such a script written.
More importantly, if you’re using PPC to generate the leads on a LOCAL level in your city/metro area … you’ll need to be aware of the fact that a certain number of impressions (searches) and clicks (visits to your website) are necessary to pull this off.
EX: Say you get 500 searches a day (for all of your keywords in total) which translates to 15,000 over a month.
If you get a 1.5 CTR (click through rate) that equates to 225 clicks (visits) to your lead gen website.
If 10% opt-in (fill out a form) that translates to 23 leads.
I’d like to see more “inside the numbers” discussion.
[...] $200 into $4,000? Local Lead Generation Can Be Very Profitable “If you’ve embarked on the affiliate marketer route, you might already be very successful with pay-per-sale, pay-per-lead/pay-per-action, and maybe even the new-fangled pay-per-call business model for a network or merchant-direct program. But are you aware of the awesome profit potential of lead generation for local businesses?” [...]
Hi Andrew!
Definitely CPL is one of really productive models to work with. However, clarity of concepts, numbers & use of innovation & latest local trends is quite significant. Its a individual choice that depends on risk v/s reward model you can comfortably work along with other monetization options.
[...] $200 into $4000? Local Lead Generation Can Be Very Profitable … [...]