Companies can get ahead in the recession by investing money in a marketing plan. Justin Rees explains how lead-generation spend should be analysed
With a bleak economic outlook, companies will be looking at cost-cutting exercises to help them through the difficult times ahead. Marketing budgets are often the first to be slashed when companies look to save money despite a raft of research and case studies proving that they can benefit significantly in a recession by spending money in this area. Cutting costs is, of course, only half the solution and, whether a large national brand or a small IFA firm, companies need to generate revenue meaning that they still need customers.
Companies have a number of choices in this environment: cutting marketing budgets and battening down the hatches until the economy improves or learning how to spend more efficiently. For any company that wants to do the latter, lead generation is a compelling proposition. Quite simply, there is no other marketing method that is as cost effective and measurable.
It is a big ask for a company in the current climate to spend a few thousand pounds on buying leads but the beauty of lead generation is that, with a few simple calculations, it is possible to plan a campaign for the business that will work. If a firm knows how much revenue it generates from a converted customer and how many completed cases it needs over a given time period in order to make a profit, then it will be able to work out how its lead plan should look and what it should spend on buying leads.
Imagine Firm A specialises in life insurance and earns £500 in commission from a completed case. Supposing that it needs to generate £10,000 in revenue a month to be profitable, it will need to complete 20 cases in this period to achieve this target.
Firm A decides to buy leads and chooses a reputable lead provider that sells life insurance leads for £30. Life insurance leads from the lead provider have an average conversion rate of between 20% and 25%. With this range, Firm A needs to buy between 80 and 100 leads a month to convert 20 into business and generate £10,000 in revenue. If a life insurance lead costs £30 then Firm A would need to spend between £2,400 and £3,000 to generate £10,000 in revenue required.
Revenue generation
Although the above is only an illustrative example, many lead buyers expect to see a return on investment where they are spending £1 to generate £3. However, these firms do not start buying leads on day one and generate revenue on day two. Successful buyers spend weeks or months refining their processes and approach to working leads. As with any marketing activity, the key is in optimising and improving performance.
For companies buying leads, it is often helpful to enter the mind of a consumer searching for financial products or services online. With the proliferation of broadband and finance-related websites, the average UK consumer is going online more often, visiting a higher number of websites to look for financial advice, filling in more forms and submitting their details multiple times.
Whereas they may previously have recorded their information at a late stage in the sales process - normally when they were ready to make a purchase - now they are looking for advice at an earlier research stage. The result is that, when buying leads, the firm gets access to the consumer at this earlier research stage and will expend more time and effort to convert into business. This is an effect experienced by many online companies and is not exclusive to the world of lead generation.
So a firm similar to Firm A, buying 100 leads a month, is receiving the information of consumers who have gone through the journey described above. Although each consumer has filled in the same form and given their express consent to be contacted, they will all be different. It is impossible to predict whether an individual lead will convert into business but the law of large numbers means you can predict what will happen on a larger scale. Essentially, lead generation is a numbers game; conversion rates, contact figures and interested customers can only be predicted from a statistically significant sample. That usually means at least 100 leads over a period of a month or so.
Quality assessment
From the point of view of an adviser coming to lead generation for the first time, this may seem like a neat sales trick of the lead providers. When asking how many leads a company should buy, the lead providers will - surprise, surprise - say a lot. But if firms work with a reputable provider, they should always advise them to start with a large enough sample so they can properly assess of the quality of the leads. Companies buying 100 leads might expect to convert 20 into business but nobody can predict which of those 100 leads will be the 20 that convert. It could be the first 10, the last 10 or they could be evenly distributed throughout the 100. The point is the company needs to work every lead to know which ones will convert.
Another mistake advisers often make is in looking too much at unconverted leads. If advisers have a clear objective before they start a lead generation campaign - such as to spend £3,000 on 100 leads, convert 20% and generate £10,000 in revenue - then the measure of success should be whether or not they hit that target. The 80% that do not convert are irrelevant if the target has been hit but, naturally, human nature is to focus on those 80 leads.
A specific lead might not convert into business for a thousand reasons. The consumer might have filled in a form on their lunch break and then not answered their phone when an adviser called them back. It might take another few hours or days to get through to them in which time they could have changed their mind or even spoken to somebody else. Before the adviser has tried to make contact, they cannot look at a lead and predict what the outcome will be. It is necessary to buy leads in volume, work all of them properly and then look at the percentages of each type of outcome. If the conversion percentage is high enough and the firm is hitting its targets by making a good return on investment, then it is doing something right.
Measuring success
Without the right approach, lead generation is not the best solution. All reputable providers will recount similar anecdotes about buyers taking five leads and judging lead generation as a marketing activity on those leads alone. The results of such a small sample will be pot luck. From five leads, the buyer might convert three into business or not even get through to any of the consumers. Lead generation should be viewed in the same way as other marketing spends: a television advertiser would not plan a campaign to run on one channel at one time and then judge the performance of the whole campaign from the response to one advert.
Lead generation is an incredibly cost-effective and measurable way to source new business and many companies use it as their only marketing activity. The difference between those that are successful and those that are not is nearly always the approach taken. That means everything from how many leads are bought to how the leads are worked. To paraphrase a prominent American lead generation expert, they work if you work them right.
Justin Rees is head of marketing at LeadPoint UK.
