ADOTAS – It seems that throughout today’s marketing and advertising industry, every broker, manager, and digital specialist is trying to find a new workable lead-generation model. Coupled with tight budgets (due to a slow economy and a drive to show results and ROI), advertisers, brands, and mailers alike are less and less likely to pay heavy dollars upfront for an unproven source or space.
What is actually somewhat surprising is how long it’s taken the industry to come around to that point of view. For a very long time, the CPM (cost-per-thousand-impressions) pricing model, in which advertisers must pay upfront for a bulk amount of consumer data (and where only a fraction of that number may end up interested) seemed to be the norm.
Leads were obtained, sure, but at what cost? How many non-leads had to be part of the acquisition process for it to work? How much time, energy, and money was being wasted? These questions become more and more pressing as organizations seek to streamline their lead-generation and acquisition processes.
Enter the cost-per-lead.
In cost-per-lead pricing, the advertiser pays only for a specific signup from a consumer interested in its special offer. For example, it’s not enough for a consumer to click on an advertisement; the consumer must then do something else (sign up for something, etc.).
CPL placement allows advertisers to generate guaranteed revenue as well as set both budgetary and return expectations within their organizations. Letting their feet get wet and treading lightly during these tough economic times has given the CPL visibility and marketing departments the freedom to test.
So where do we see the CPL model come into play today in our industry? Once strictly married to co-registration, we have now seen its popularity spread to banner campaigns and affiliate models.
The advantages are clear: you’re not paying for leads that don’t do what you want them to do.
Most marketers assume that the lower dollar cost per lead, the better. Spending less is always better, right? Well … not always. For example, would you rather have 100 leads per month at an average cost of $0.50 per lead, or 150 leads per month at an average cost of $.80 per lead? Seems like a no-brainer: $0.80 is more expensive than $0.50.
However, depending on factors such as lead-to-sale ratio, and the average profit margin associated with a sale, an $8 lead might be your best choice. In fact, you just might be willing to spend much more per lead, based on your ROI. The point is that many different factors contribute to what is your optimal lost per lead, and those factors can sometimes be in flux, so that the smart marketer is always reassessing his or her CPL strategy.
In the past, relatively few marketers were paying attention to the backend results, and now that lack of attention is catching up to them. The reality is that no one could really tell how much each lead ended up costing, so there’s no way to tell whether or not it was money well spent.
Marketers who expend the time and effort required to estimate the value of an online lead have a big advantage over their competition when navigating the marketing efficiency curve. Instead of focusing solely on driving cost/lead down, these savvy marketers focus on maximizing lead volume at an acceptable (i.e., profitable!) cost per lead.
It seems that everyone is trying out new ways of finding new customers and reviewing the already-established methods for effectiveness and cost-effectiveness alike. Co-registration has come under fire lately because of the danger of partnering with a less-than-scrupulous list broker.
(Note that I’m not against co-reg: If you have a reciprocal arrangement between your organization and a few others in related areas and negotiate paying for only valid, usable leads, you’re fine—honest and effective data collection is essential to the online industry and is in everyone’s best interest; no one benefits by gaming the system or cutting corners.)
New lead-generation companies are popping up every day and it’s difficult to cut through the static to see what has the potential to really work.
So what does the future hold? I think we’re going to see the CPL model morphing more and more into CPA (cost per acquisition) deals, so that payment is made when a customer actually makes a purchase. Think about it: isn’t that a more efficient way to spend your acquisition dollars – by actually making an acquisition?
Do you know what your current cost per acquisition is? If you don’t, then it’s time you gave it some thought. Lead generation seems to be all that people are talking about (just look at the attendance at LeadsCon if you don’t believe me: every year the conference gets bigger and bigger), but not everybody is really clear about where their company stands in terms of real performance marketing.
The bottom line? Each marketer must test his or her own efficiency curve, understanding the volume/cost relationship for your particular market. As campaigns are being optimized, data is been gathered, and you need to take a step back and analyze your options.
Don’t throw money away or jeopardize your brand: create a clear CPL strategy, analyze the results, tweak as needed, and repeat. And that’s talkin’ about our lead generation!