If you’ve embarked on the affiliate marketer route, you might already be very successful with pay-per-sale, pay-per-lead/pay-per-action, and maybe even the new-fangled pay-per-call business model for a network or merchant-direct program. But are you awesome of the awesome profit potential of lead generation for local businesses?
There’re a number of marketers who’ve shared their experience in this space:
- Jeremy Schoemaker “Shoemoney” covered a case study for a local Chevy dealership including the creatives and analytics for the campaign
- “CDF Networks'” Chad Frederiksen covered some of the elements of a lead generation business
- Dennis Yu had a guest post by Gerald Neo “How to grow your SEM business in Asia“
Taking an example. If you got a $100-200 payout for a finance-related lead, at a cost of $30-50 in lead generation costs, which works out to a 275% margin. Which sounds attractive.
However, the finance service provider might make a commission/profit in the magnitude of $1,000 to $5,000 on the customer, about a 19,000% gross margin. Factoring in a 20% default rate and operating expenses of 30%, the customer value is a healthy $1,500 (assuming the provider manages their risks prudently).
So if you’re an affiliate, would you prefer to make a $150 commission per lead or $1,500 per customer?
Just remember that a number of CPA affiliates who’ve tried to go down this route have given up because of the extra administrative and operational effort that is involved.
I’ve been coaching a client in the real estate industry about the mechanics of lead generation and he recently spent $200 in a test PPC campaign, which generated 8 leads, and resulted in 1 conversion translating into a gross profit of $4,000.
Aside from his costs, his time spent was marginal, so he’s coasting at about 19 times ROI.
Note: this was a test campaign, so you should not go out and extrapolate a linear ROI from starting a $5,000 campaign.
However, he applied a number of points which led to the success:
- GeoTargeting to a specific location: Face-to-face business transactions are almost always more valuable than ones which you hand off to an Internet-based merchant/services provider.
- Highly targeted: The campaign was geared towards one specific demographic – income, value of real estate, position on the buying cycle.
- Pre-qualification: Even with the demographic locked down, he offered a paid informational report to pre-qualify the lead. This resulted in 8 prospects who had bought the report.
- Face-to-face closing: As he was in the same geographical area as his prospects, he met up with one individual and closed the transaction.
Note: unlike the example above, you don’t have to take on a local lead generation campaign from start to finish, and instead work with insurance agents, realtors, service providers to hand the leads off to. Contacting a local partner, having an agreement in place, and periodically auditing the process to ensure that all leads are being tracked accurately, can be a very profitable income stream to complement your existing efforts.
One line in the Dennis Yu guest post bugs me though “To many SEM specialists, this is a golden opportunity. But then, they have to realise that Singapore is a small market. And it cannot sustain their ROI, just by focusing on one market alone.”
Given that Singapore’s GDP is $240 billion (2008 estimate) and is ranked 46th in the world, with a stock of money rated at $52.57 billion (31 Dec 2008) [Stats from CIA World Factbook]. I can’t help but feel that guest poster Gerald Neo either is pretty naive, or didn’t do his homework. Hopefully, it’s the latter.
Choosing one of the industries listed at the Economic Development Board of Singapore’s industry sectors, such as Aerospace, Petrochemical, Alternative Energy, Biotechnology, or Microelectronics can potentially be a business worth a couple of million dollars. That’s anything but a “small market”.
Interested in lead generation? Check out my review of Chad Frederiksen’s Local Lead Plan.