Calculating Value Per Lead for Local Business?

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If I could get a company to pay 2x my cost I'd do it all day long for as much as they could afford.

From the perspective of the business, I'd say a fair cost per lead for them would look something like:

(value of sale) x (lead to customer rate) x (target acquisition cost rate)
 
I remember awhile back, Shoemoney wrote about him taking all the inquires and phone calls for a local dealership. The dealership stated each phone inquiry on a new car was worth about $7. He took half that. Had a full time employee take the calls and he profited something like 20k a month.

Other than that... I don't know shit.
 
I'd say the highest possible rate you can negotiate with the business? If they have some local competitors they can bid against each other.
 
Ask them what is their lifetime customer value.
Then ask them what they'd be willing to pay to get a client.

Use that figure as a starting point to negotiate. You'd be surprised. A lot a times they'd be willing to pay more than what you thought you could charge.

If you make sure your leads convert for them then sky's the limit.
 
The thing is do you charge per LEAD or per CUSTOMER?

Let's preface this with I know local businesses VERY VERY well.

When you charge per lead they say the leads are crap because they cant close them. 99% of the time the person on the businesses end of the phone is a douchebag and cant be bothered selling there people because their busy with other stuff. In my experience this dooms pay-per-lead programs for local business because they always say the leads are crap.

When you charge per customer, you are depending on that same douchebag to close these people and get them into the business as a customer. So you are essentially throwing marketing money at a variable you cant control. Your also trusting that they are going to tell you how many people turned into a customer which I wouldnt trust.

Quite honestly this is why ive stayed out of local affiliate marketing. And just because they are a car dealer or real estate office doesnt mean they know how to sell either. Theres a reason that GM & Chrysler put thousands of their dealerships out of business.....because they suck balls at even trying to sell the customer a car.

What are your thoughts on pay-per-lead/pay-per-customer for these small businenesses?
 
I took over a $2000 a month PPC spend for a software company. Did a pretty extensive job at fixing CTR, Quality Scores, bidding types. Added 20 ad groups...

CPC from $4 to $2.38, CTR from .50% to 1.5%, Monthly leads from around 6 to 60 - Same spend

Increase in sales = $0 No new clients closed (Big Ticket Software)

The 1 salesman sucks ass and spends his day emailing people (including me) about his sports team and fantasy league sports.

I don't do pay per closed sale. I might do pay per lead but most companies would not do it if they notice that you are making too much money. Like the above example I wrote. Maybe before I started I could have negotiated $75 per lead. Do you think they would keep paying me $4500 a month on a $2000 spend of mine and be happy about it?
 
Drake said:
Do you think they would keep paying me $4500 a month on a $2000 spend of mine and be happy about it?
Click to expand...

One thing I havent mentioned is that local businesses are NOTORIOUSLY HORRIBLE payers. You might have generated 10k worth of leads but good luck getting paid for them (especially car dealers).
 
I know a guy who made it work. He ended up managing a newly created call center/inside sales dept for them, because the "salesmen" couldn't be bothered to follow up on the typically small account prospects that most of the leads were. But there was money in them, which he proved by having people actually getting people to close the business. In the end to "salesmen" lost their jobs.
------
rant

Most local small businesses don't know their numbers. They don't know their close rates, they don't know their lifetime value of a new customer, they don't know their allowable cost of advertising. They have never determined the response rate of their yellow pages ad. They just don't have the market / accounting background to even know that they would want to. And the SBA and SCORE don't tell them any different. It's a crime.

/rant
 
Having people actually s/b creating a call center / inside sales group that he managed.


What I get from posting via iPhone on a coffee break.
 
Pick your industry (ies), Collect leads. Create a self service portal for each industry. Use your traffic skills to acquire full record leads. Add new leads daily (you can script the addition of the lead into your portal/database). Offer 3 free leads as an incentive to try the service. Promote your Lead Gen business locally.

Tackle each Metropolitan Area with the same setup. Again a script can add geo targeted leads to each portal.

You can score big with this model since in many industries that are heavily reliant on leads, you can sell the same lead multiple times. The sales people are aware that it is being sold to multiple buyers (it's an accepted and expected business practice) and the first one to close the lead wins.

If they can close 1 of 10 of your leads, they'll buy from you repeatedly. Some leads you can sell for $40 three times each.

Self Service Portal forces them to pay for leads straight up. What they do with it after that is their problem.

(Kinda makes you look at all those Insurance/Real Estate/Debt leads that pay as low as $4 for the full record in a different light. They are getting over big on you by selling those leads for $$$.)
 
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marfarma said:
Most local small businesses don't know their numbers. They don't know their close rates, they don't know their lifetime value of a new customer, they don't know their allowable cost of advertising. They have never determined the response rate of their yellow pages ad. They just don't have the market / accounting background to even know that they would want to. And the SBA and SCORE don't tell them any different. It's a crime.
Click to expand...

I think your right. What kimbo said about asking lifetime customer value...well 90% of them probably just don't know (just assuming).

Would it be fair to ask them how much they grossed in the past year and how many clients they served then just go off of that?
 
I'd consider doing a %-based compensation if possible. I did a flat fee rate with cosmetic dentists and it was a mess. Go for X % (20% 25% or whatever it's worth it to the client).
 
dickarmy said:
Pick your industry (ies), Collect leads. Create a self service portal for each industry. Use your traffic skills to acquire full record leads. Add new leads daily (you can script the addition of the lead into your portal/database). Offer 3 free leads as an incentive to try the service. Promote your Lead Gen business locally.

Tackle each Metropolitan Area with the same setup. Again a script can add geo targeted leads to each portal.

You can score big with this model since in many industries that are heavily reliant on leads, you can sell the same lead multiple times. The sales people are aware that it is being sold to multiple buyers (it's an accepted and expected business practice) and the first one to close the lead wins.

If they can close 1 of 10 of your leads, they'll buy from you repeatedly. Some leads you can sell for $40 three times each.

Self Service Portal forces them to pay for leads straight up. What they do with it after that is their problem.

(Kinda makes you look at all those Insurance/Real Estate/Debt leads that pay as low as $4 for the full record in a different light. They are getting over big on you by selling those leads for $$$.)
Click to expand...

+rep
 
S-dog said:
I'd consider doing a %-based compensation if possible. I did a flat fee rate with cosmetic dentists and it was a mess. Go for X % (20% 25% or whatever it's worth it to the client).
Click to expand...

i'm doing that on a high-ticket item that averages $20-30K per sale...the guys i work with markup their cost 10% and with my referrals, they just add another 5% for each cpa as a commission.

the lead area (local or national) is basically limitless as to the $ you can make.

and btw, that original article posted at the top was written by Shoemoney...
 
Andrew Scherer said:
I think your right. What kimbo said about asking lifetime customer value...well 90% of them probably just don't know (just assuming).

Would it be fair to ask them how much they grossed in the past year and how many clients they served then just go off of that?
Click to expand...

I googled around a bit, and came up with this: The Successful Formula for What to Pay to Acquire a New Customer | How To Grow, Profit & Organize Your Business It's an approachable presentation of the math involved.
 
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