Tag: Startup

Last time I wrote about lead generation and some thoughts on how to price leads.  Now, I’d like to walk through an example of how to get to a starting price.  I’ll lay out some of the basic math, some of the finer points that have to be considered on a case by case basis, and what I consider to be the best way to get the data necessary for this type of analysis in a nascent and undefined market where secondary sources are lacking.

Example: Company A is the buyer of leads, Company X is the seller of leads (aka the lead gen company).

Company A makes 1,000 outbound calls to get 100 leads, which converts to 30 appointments, which converts to 5 sales with an average selling point of $10,000.  So, for those 1,000 outbound calls, Company A grosses $50,000 (these numbers are totally fictitious by the way).

Company X’s leads are “more qualified” because people opt-into them only when looking to make a purchase decision.  Therefore, 90% turn into appointments.  Every 100 qualified leads => 90 appointments => 15 sales = >$150,000 in new revenue.

This is where things get tricky.  We know how much revenue our leads are potentially worth.  But what does this translate to in terms of what they are worth to Company A (taking into account the extra FTEs freed up that don’t have to spend their time prospecting)?  Let’s assume that the internal sales person makes 20 prospecting calls in an hour and their time is worth $25/hr.  Our 100 leads convert to 90 appointments which would be the result of 3,000 outbound calls (3,000 calls=>300 leads => 90 appointments).  These calls cost Company A (3,000/20)*25=$3,750, or $37.50 per qualified lead.  Of course, this number doesn’t include a whole lot of other factors that could get in the way, but you get the idea (we could also factor in the lower cost of converting Company X leads in appointments even from the “lead” part of the funnel since they require fewer conversations given the higher lead => appointment conversion rate, and thus less time.  But, let’s keep this simple).

These numbers are good starting points in getting a picture of how much to charge per lead.  Basically, we want to get a sense for where our leads fit into the customer’s pipeline, and how much it would cost Company A to get the same quality of lead without us.  That’s what it’s all about!

These are just preliminary thoughts.  But how to get this data?  My advice would be to join the relevant LinkedIn groups for salespeople in your industry, and cold email them.  Why are sales people in this industry giving you accurate information (or even talking to you in the first place)?  Because you are an entrepreneur, they are intrigued enough at the prospect of talking to a potential employer, and are therefore willing to ingratiate themselves through providing (hopefully) insightful and accurate data around their sales efforts.  Plus, salespeople just like to talk.

Here are some questions I’d ask the people you get a chance to speak to: the all in costs of each sales person (base + bonus + benefits.  If you’re going to be replacing FTEs with your leads, then you need to know the ROI you’re providing Company A); what the sales cycle is (how long does it take, what is the overall process), and where your leads will fit into this equation; whether you’d have the same appointment to sale conversion rate on qualified leads as on prospected ones (qualified leads are actively searching and therefore will be evaluating your competitors whereas cold sourced leads may not be, but cold sourced leads may not really be in the market for the product); the organizational challenges of managing a large sales force; the ability your leads may offer for Company A to specialize its sales force (i.e make some people dedicated closers, and others focused on prospecting, or get rid of prospecting all together which may raise morale and increase efficacy).  There are, of course, many more relevant questions.  But, hopefully this list would provide a solid starting ground.  Remember, the bottom line is figuring out where your leads fit in and why, how much value they are offering your client, and starting from there.

Each industry has their own idiosyncrasies, and you have to keep in mind why your pricing makes sense versus your “competition” (internal sales teams in our example, but quite easily other lead gen companies or outsourced sales resources).  Are you going to under price and offer an ROI analysis for potential buyers of your leads?  Are you going to replace an existing lead service that offers unqualified leads at a discounted price?  Will these be exclusive leads?  All very interesting questions!

If you have any feedback on any of my posts or just want to say hello, please email me: phil (at) philstrazzulla (dot) com.

The other day I had a very interesting conversation with an entrepreneur who is about to launch what is essentially a lead generation business in a nascent but well defined vertical (which will remain unnamed for now).  We were talking about his revenue model, which is still very much in the works, and also some initial thoughts on how to price his leads which I thought would be interesting to share.

For the uninitiated, lead generation businesses develop potential sources of new business and sell these sources to companies interested in reaching these sources of business.  An easily understood example is that of financial planning lead generation.  There are many websites that capture data on people looking for advice on Annuities, ETFs, etc.  The companies that capture this data then sell it to financial planners as qualified leads.  The process looks a little something like this:

These leads then find their way into the sales funnel of the buyer of the leads. Below is an example of what a typical sales funnel for a financial planner may look like (the leads that we would collect as a third party lead generator would fit in somewhere between leads and appointments, more on that later):

If you’re providing leads into this funnel as a third party, it’s important to track the efficacy of your specific leads throughout this funnel.  In fact, many lead generation companies do not get paid per lead, but rather based on the number of appointments their leads can generate which is a proxy for how well qualified the leads are.

Now, about the actual pricing of the solution.  I’d like to shift away from financial services for the time being as that market is fairly well defined.  The competition you’d face within financial services is other lead generation companies (as this is a mature market as far as lead gen goes) and therefore the price is set at the market rate unless you can offer a differentiated product.

Shifting towards my entrepreneur friend’s nascent market – there are no other lead gen businesses, nor is there any outsourced sales organizations servicing this vertical.  Therefore, the focus is on competing with internal sales forces.  Understanding the compensation structure was the most important take away that I could offer.  Most internal sales reps, especially those selling big ticket items, are paid a minimal base salary and large performance based bonuses.  The key is to figure out where your leads fit into their sales pipeline, and then figure out the expected value of that lead to the company, as well as the expected cost associated with that lead if it were brought in through the internal sales team through telesales, direct mail, etc.  As this post is getting a bit long and Lost is on tonight, I’ll leave walking through an example with some numbers until part 2.