How to decide what to charge for leads?

I look at the CPC and multiply it by 100. I then divide it by 8-10 (8-10% call - generous). I typically think 1 out of 4 calls convert.

Let's say $5 CPC

$5 *100 = $500
$500/9% = $45/lead

Basically they are paying $180 for a new customer.

No, you are providing leads (calls) to their business, if they can't close, it's not your fault. Do NOT do it this way, it doesn't work.

Hi Mike,

Those are SIMPLE questions to answer (they're simple TO ME as I've spent many, many years in the trenches -- learning and implementing these things)!

Yes, absolutely there's a formula to KNOW what the life time value of a customer is. THAT IS YOUR LEVERAGE, your selling leverage in order to have a business INVEST IN YOU! If you can "teach them this", then you will be considered "THEIR GO-TO MARKETING EXPERT"!

Therefore, once YOU know how much a company pays for advertising divided by the the number of customers they receive, then they'll know how much money it costs them to ACQUIRE 1 CUSTOMER! Which is certainly more than the cost of a lead that you're suggesting!

Mike, if this doesn't make sense to you, then let me know by PM; I'll explain it better.

Cheers,

JMB

Hi Mike,

That is why I use the Google Keyword Tool to get an estimate on the CPC. I use this formula to show the client the cost of going with Google Adwords vs. Me. 8-10% is too generous. I have a spreadsheet that does the numbers for me and I was on a different computer (lst night when I wrte the above reply) and was going off memory. I'll outline it a little better below;

A customer to a carpet cleaner is worth a lot of money! It's about $17 per click in Vegas, so...

Using Google Adwords


$17*100 clicks = $1,700
$1,700/4 = $425 per new customer (4% is pretty high, it's more like 2%)

I typically divide the above number by 4 and let them know I'll do it for 1/4 of what Google will charge.

I did this for a personal attorney (not per lead, but broke it down this way). It was about $70 PER CLICK. SO I said....

$70 * 100 clicks = $7,000
$7,000/4 = $1,750 per new client (avg PI case is $4k - $8k taking an avg of 9 months) They are willing to pay that amount, obviously.

He pays me monthly, not per lead, but last month with the calls we generated for him, he paid about $50 per call.

Close 1 in 4 and that is $200 per client.

Much cheaper than the $1,750 above.

And now that I laid all that out, I realized something...I need to up my prices.

512 Designs --- my method is this. I check with Service Master rate sheet and see what they are paying today for leads per service/industry...lets say $25 then being that they will be the only person that I give the leads to I will multiply it my 2-4 times... it varies per industry. But in short I would not sell a lead less than $50 if they are charging $25 at Service Master/Magic. If it is a high paying customer to them I will use the 4 times number ...$100. Hope that made sense.

I think it depends on how "warm" the leads are. I have worked in the lead industry for many years. If they are cold leads, that maybe demographically targeted but must be contacted via mail, email or phone to test interest and "sold", they are usually pennies a lead. If they are coming to a website or already expressing and interest they are worth quite a bit more. Insurance leads can be sold for $10-$20 per lead.

Bottom line for me is...how close they are to an actual sale and how high the dollar amount of the end sale. I do believe there is a HUGE market out there for qualified interested leads gathered online.

I charge anything that is over a 2 minute phone call. Usually business owners can tell if a person is a potential client or not. You can charge by sale but realize that if they suck at selling then your not going to make much money.

I think allowing a client to pay you only for sales would be a terrible idea, therefore it is imperative to charge per call period. I think it's an even worse idea though to come up with a number by yourself in the formula for the clients closing ratio.

You need to allow your client to help you come to this number by asking the right questions here. I have never worked with a client that told me that he was no good!!! If asked what the chances are of a new customer getting a good product or service and returning for more they always want to puff their chests out and tell you how good they are! Most will almost always over estimate their own closing ratios so let them tell you... and bada-boom, bada-bing your leads just became worth more money in their eyes too!!!

I tell them to get serious and tell me when any other advertising medium offered them the same terms.

Then I tell them that if they will agree to independent third party verification, then I will agree to sell them the leads that way. (This works very well real estate and mortgages, for example, where the public records will reflect that your lead bought a property. They will agree to these terms.)

If they don't or can't agree to that, I make the presentation again or I move on to a good prospect. Sometimes both.

If you will work to generate the lead and make the sale, you don't need the client. All you need is the inventory and you can begin competing against the client. Let them know that. It helps them see how valuable your service is to their competition.

Everyone has their own strategy for pricing leads. Having dealt with a number of different industries in the lead generation business over many years, I really don't think there is one size fits all for every business. I have found that it really depends on the industry. For instance, contractors are used to buying leads, so they get the idea and if they are big enough probably already know what they can pay. You can always ask what they are currently paying, or have paid, and then see how you can provide a better service (e.g. exclusive leads, custom branding etc.). Go in knowing what you need or want to make and figure out a way to make it a win-win. My goal is long-term partners that will stick with me for years, not decide it's not worth it and then I am hunting for a new client.

I also deal with a lot of companies that have never bought leads before. For various reasons, I don't just send leads and then try to sell them. I pick my niches carefully and then find a client first. It's a personal preference for my business model and have not had a hard time finding the right companies to build a relationship with. At any rate, what I do when they have never bought leads is actually run through all the numbers with them. Pretty simple to do.

Here is my model for pricing leads for a long-term relationship. My guess is you may be able to get more if you set the price and go sell them without going through this. I think the opportunity cost may be high as you could be looking for new clients on an on-going basis. This method is something that I have found is a good one for starting a relationship out as a true business partnership that will benefit both businesses equally and lead to long term success for both if managed correctly.


First, figure out the value of the client over the life of the relationship for the business (if they don't know this then may want to consider a different client as this should be data all business owners should know). It is not crucial they tell you this if they are not comfortable, if not, that's ok you skip to step 2 and still be able to come up with a number, but makes it a little harder to come up with a solid number, so you really should have some data from step 2 handy.

Second, we then discuss what they can pay to acquire this customer. It will vary greatly by industry, so you need to do your research and be able to provide guidance on what the industry norm is. If you can't find any data, you will probably need to do more analysis with the client to try and determine this. But you should know ahead of time your cost to provide the leads and what profit margin you want as a starting point.

Third, here's the most important step, you need to figure out what their real close rate is. Many people greatly over-estimate this number. To ensure the numbers work, have them try and pull data to back up their number as this will determine what they can pay and if they will stick with you long term. If they have an updated CRM this should be fairly easy to do. Otherwise this will take a little time to have them look through records or other info they have. It sounds time consuming, but it's very, very important you try and get this as close as possible to accurate.

Last, once you have vetted the close rate, work backwards from the lifetime value of the client, use the close rate and data from the industry to figure a win-win cost per lead. So for example. If they determine that a client is worth $10000 to them, and they are willing to pay $1500 to acquire a client, then work backwards from there. Let's say you both determine that they can close 10% (to make it easy) of their leads. So they should pay you $150/lead ($1500/10). Now you have a number and you will then need to decide if that will work for your strategy.

This is a very different approach than a lot of people I have seen posting on the forum. However, it does a few things:
a) builds a high-level of trust between the two parties
b) sets up a strong relationship as the business owner has gone through the exercise of why you need to charge what you do and they understand that you are willing to work with them to make it feasible for them to grow
c) shows you really understand the lead generation business. Data is a very valuable piece of information in business, and this model is really breaking down the true cost of leads and creating a win-win.

Something to think about as you determine pricing.

Localvse and others that are doing lead gen,

The way you guys are doing your lead gen models is by ranking a site in a niche with content that is generic and having a forwarding # on there plus a strong call to action message to get people to call,once they visit the site?

Does anyone also have a contact form on there or response rate is too low on that and we should just have phone #a few places wirh a strong CTA?

Any feedback?

I've found the simplest way to do this is to create the website, get it ranked and generating phone calls then pass on these phone calls to a local business that is not ranking well in the search engines and is paying for Google Adwords.

Once I've passed them on a few leads I simply negotiate an agreement based on their business. I don't worry too much about trying to get the maximum rental for the leads as I want to build a long term relationship and end up doing all their online marketing.

I've come in late on this thread but have a situation right now where a real estate company is offering to pay me commission - but only on leads that convert to a sale.

Their offer is 3% of the sale price of condominiums, which would be quite decent amount. But the downside is that it could take 3 months for the lead to turn into a sale. And also I have no control over the sale process other than providing the lead.

Would anyone recommend going for this? They say they're not willing to pay per lead - claiming "too much risk" for them.

@JGregory - Thanks for sharing all of your clear expertise and wisdom.

First thread i couldn't suck myself away from, lol.

I'm currently getting back into growing my local bread and butter customer base after trying my hand at more strictly online stuff.

The local clients have money and as long as you have a system in place to both get them and service them...that's where the non headache dough seems to be at (in my guestimation).

Underwear entrepreneurs are quite possibly the worlds worst customer base, if they make up yours...

While I'll always be tempted by the bright and shiney...I think its important to stay the course and hunker down, narrowly, especially if you're getting into offline...its gold...it gets boring sometimes but its gold.

Wonderful dialogues...thanks again.

Regards

Los

Lot of good information here, I don't normally sell leads to clients but I've often wondered how you would valuate each lead. This is good stuff here.

if it's a verified billionaire desperate to invest $100m+ tomorrow it's worth bit more than some get rich quick i.m looking or a $5 ebook.

amen to that