Pay for performance lead generation is an awesome model to create new business when you find the right partner. It can bring in a flood of potential customers eager to buy your services or products. When it’s working well, businesses can scale at lighting speeds.
Does pay for performance lead generation work? Pay for performance lead generation works extremely well when a revenue share model is used and both the client and the marketing firm share equal risk. It can also work well in a lead-only model for businesses with proven funnels.
Whether you’re a business looking for a lead generation firm or you are a marketing firm thinking about offering lead generation services, a performance model is typically optimal. Businesses should be careful when choosing a marketing partner and marketing firms should be equally diligent in analyzing past client performance.
Let’s explore if performance lead generation is right for your business.
What is pay for performance lead generation?
Pay for performance lead generation is when a business hires a marketing agency to generate leads and and a guarantee of marketing performance is established. Let’s talk about how this performance plays out in real life.
There are two common forms of pay for performance lead generation:
- Revenue-Split Model: A business agrees to pay a marketing agency a portion of the revenue generated by the leads. In this model, the marketing agency takes on two forms of risk: generating quality leads and the expectation that the client will close those leads.
- Lead-Only Model: In the lead only model, the business agrees to pay the marketing agency for a set number of leads secured. For example, client A pays marketing firm B $1000 for 100 hundred email leads. More risk is taken on by the company in this model as lead quality control can be an issue.
What type of performance lead generation works best?
This is a great question and really depends on a few factors and how your business model works or how your marketing firm is structured. Here a few things to consider from both angles:
If you’re a business hiring a marketing firm for lead generation:
- Has the marketing agency proven a track record of lead generation quality? This is important with the lead-only model.
- Is the marketing firm willing to use the revenue-model to ensure higher quality leads are generated?
- In a revenue-model, are you willing to share the revenue?
- In order for a marketing firm to use the revenue model with you, you’ll need to prove key performance indicators (KPI’s), closing rates, and have a proven funnel in place.
- Have you measured your internal KPI’s to ensure that your current close rate is at least 10%? If not, you have a closing issue, not a lead issue.
- Do you have a sales infrastructure to successfully close leads? Have you trained your sales team or are you the only sales person? The ability to address leads immediately reduces churn rate substantially. As they say, “strike will the iron’s hot.”
If you’re a marketing firm
- Do you have a proven funnel that works time and time again? If you do, you’re set.
- If you are providing a lead-only model, do you have enough marketing data and collateral to prove lead quality to your client? In other words, can you prove the leads aren’t crap?
- Do you offer sales-closing consultations?
- If you are providing a revenue model, do you have an appropriate method to evaluate successful business funnels and KPI’s?
- Are you ready to roll up your sleeves and improve funnel quality? You know, those pesky things like non-converting web pages, lead pages, email auto-responders, email sequences, scripts, pixel retargeting, creative content, etc?
Does performance lead generation cost money?
100% yes. This is the most common misconception companies make when beginning the search for a lead generation partner. We’ve never met a QUALITY lead generation marketing firm who isn’t compensated something.
Of course there is risk for the marketing firm, but there are still costs associated with performance based lead generation. No marketing firm is going to bet the farm that you’ll close at an acceptable rate to make sure they don’t lose money—not gonna happen. And if they are willing to bet the farm, you’re either a unicorn company worth $$$ or you should run very fast in the opposite direction.
Revenue model costs considerations:
When we say “performance”, what the industry is really saying is “discounted service fee + performance”. Let’s look at an example of a revenue model fee structure (hypothetical). Take for example a marketing firm who is going to help you with advertising in a pay for performance marketing model. The cost of your ads is YOUR expense and the cost to manage the ads will be partly YOUR expense (usually 50-60% reduction in ad management fee’s by the agency).
So what’s at risk? Normally the agency would make 100% of their agency fee or a percentage of the total amount you spend on ads. They are betting some of their percentage up front that you’ll close like a boss and share the revenue.
If this doesn’t sound like a good deal, it really can be. There is a huge incentive for the company to perform well and an equal incentive for the marketing agency to perform well. If the business makes money, the agency makes money.
Lead-only cost considerations:
Typically the cost incurred by the client is the cost of placing advertising or a $ per number of leads. We advise against a lead-only model + advertising costs for one simple reason: lead quality. Any marketing agency can broaden an audience so wide and create enough leads to show “lead generation,” but it doesn’t mean those leads will be worth a darn.
If you need to sell horse shoes to horse owners in Nevada and your marketing agency is getting you goat herders in Montana to respond to your ad—you lose!
Which lead generation model is best?
As a marketing agency with loads of experience in this area, we suggest both marketing firms and clients use a revenue model. Both parties have skin in the game. And both parties have sufficient motivation to perform well.
If you are a newer company, you may have to work with a newer marketing firm as you’ll have very little social proof that your funnel works. If you’re a new marketing firm, you may have to take on new businesses with little social proof.
How does lead generation work?
Believe it or not, this is a really popular question. Essentially, a marketing firm is paid to bring in qualified leads to your business for you to close—resulting in a sale. It’s seems simple, but the execution is not.
There are multiple ways to bring in leads and it’s very important that you understand the different options available to you. The following list isn’t exhaustive, but they are the most popular.
There are many types of advertising leads that you can pay for. For the sake of this article and this century, we’ll stick to digital leads. Digital leads are typically funneled from Facebook ads, Google ads, Instagram ads, Linkedin Ads, Youtube Ads, Bing ads, display ads, banner ads, and quite a few others.
All of these ads mediums cost money and all have a different lead expectation. Search browser ads like Google ads will be highly targeted but more expensive. Disruptive social ads like Facebook and Youtube will be less targeted but less expensive.
Cold email leads:
Yes it’s true. You can pay a firm to cold email on your behalf. It’s brilliant, but it’s also likely to fail. Before you jump down my throat, let me explain myself…
Does cold email work? Yes. Can it be really effective? Absolutely. Have small businesses made a fortune executing cold email well? You bet. I can name a dozen.
But, and it’s a big BUT…it’s fantastically difficult to find a talented firm who knows what they are doing and not alienate your potential customers. It’s the truth. You’re more likely to find a sketchy firm from east Europe soliciting cold email and delivering junk. That’s the industry.
A newcomer to the email scene is LinkedIn. You can direct message/Inmail potential customers. It can be highly targeted and a terrific place to begin dialogue. You can pay firms to do this part for you.
Yes, people still cold call. No, we aren’t going to explain what this is because we’re positive you know what it is. What we will say about cold calling is that it can be really impactful because so few people are willing to do it anymore.
Leads can be driven from a web source directly to your email or website. This differs from paid advertising in that your ad isn’t driving the leads. An example of Inbound Leads would be Zillow for realtors. A realtor will pay Zillow for every inbound lead that comes in or pay for a territory on a monthly basis. The potential home buyer has no idea which realtor is receiving their lead, but they are trusting Zillow to take care of the introduction. If you’re a realtor who is considering using Zillow for quality leads, please call us, we have a bridge to sell you.
Networking | Masterminds | Affiliates
Many companies pay to become part of a network where leads are funneled to you when you are the right fit. It’s a bit of a pay to play scenario, and it can work, and it can also blow up in your face. An example of this would be joining the chamber of commerce, or a club where you can become a “preferred vendor”, or even a Facebook group where you contribute regularly.
What type of lead generation is best for business to business? We really like Facebook ads, Linkedin outreach, and cold email. All of these systems are proven to replicate well.
What is good closing rate for leads? 10% for new businesses with little social proof, 15%-20% for an existing business, and 30% if you are a rockstar (you’re probably reading this from your yacht).