Lead Confidential

In our post, “What Is Lead Generation,” the goal was to help add some structure to a term used very broadly, i.e to provide a framework for categorizing different businesses. And, as mentioned previously, those operating in online lead generation, as we use the term, have following in common:

They play some part in connecting users with companies – those interested in a good or service with a provider of that service
They work on a real-time basis
They more often than not try to solve an online to offline divide, i.e., users search online for a good or service but a key element of the transaction for that good or service generally occurs offline (be it phone calls or in person visits).

Were we trying to solve the question of what makes for a good vertical, we would also want to add the following:

The industries tend to have rather complex products
The life time value of a customer is high

The complex product piece isn’t always necessary. If we think about finding a cleaning service or a plumber; those don’t require an explanation (like a complex insurance product would), but they do require offline fulfillment. In the past, and still today, those trying create new marketplaces for online lead generation will focus on complex products first, because it generally means a greater likelihood of getting a customer on the phone.

The online / offline divide, generally means that much of the follow-up must take place on the phone. It is one of the elements that makes online lead generation special. There is a dual-risk. A lead seller generally must spend money to generate a lead for the buyer, but the lead buyer makes no money off the data received. It’s one thing I like about the model. There is some cost (time), but there isn’t a physical cost. That is not the case with all types of customer acquisition, and it is why Lead Generation cannot be synonymous with customer acquisition.

Here is the way I view the world:

The “What Is Lead Generation,” post focuses on the left hand portion of the umbrella. The right hand side of the umbrella operates on a different model. All companies under the umbrella want new consumers, but for certain companies, it doesn’t make sense to purchase leads. They could try to purchase leads, but that would fall under Database Marketing as opposed the Transaction Oriented which encompasses upwards of 85% of the dollars spent in the online lead generation ecosystem.

Companies on the right half of the umbrella all share something in common, especially online, they collect billing information. Unlike a conversion on a lead form, a conversion that takes place with a transaction oriented company doesn’t happen without the user entering their payment details. Transaction companies might have email sign-ups and other no-cost ways to extend a dialog, but from a conversion standpoint, it means the ability to charge.

Where things get tricky, at least from the marketing standpoint, is when looking at continuity programs. The ability to charge a user is a very powerful tool, and for services that we like, we don’t mind. While we may pay more than we like for certain recurring charges, that they occur every month doesn’t both us. Currently, the trouble comes from the perfect storm of cheap media and borderline illegal marketing techniques used by marketers promoting unbranded continuity programs where users sign-up for a free trial without being made aware of the full extent of the charges and their being easy mechanisms for cancelling.

Source: JayWeintraub.com
Original Posting Date: April 2006
Last Modified: December 2008

In 2006, I received an email, which said, “I am setting up an online media campaign on a cost-per-lead basis for an online University. I am working on a final budget and would like to come up with an average CPA for this campaign… Please contact me to workout specifics.” Unfortunately, the specifics did not include a client name, but it did require an RFP (Request for Proposal). Not coming from the agency world, the thought of an RFP to run an online education campaign seems incongruous. The world of online lead generation is a dual risk world – both the lead buyer and seller take risk. The idea of an RFP is typically for a supplier to pitch someone spending money. That makes sense when fixed dollars are at stake but less so when a supplier receives payment on a purely performance basis. The two parties will clearly agree upon what constitutes acceptible leads, but buyers and sellers work on that and other specifics together. For those wondering why a lead seller fill out a sheet pitching themselves, especially to a new buyer, the market is too full of larger partners with more experience. A lead seller will simply focus on those.

The point, however, was not to criticize the approach but to help answer the question of the average CPA and volume factors. In general (with respect to online education):

The average CPA depends on many factors. One of them deals with the school itself, and that is whether the offer is online only, ground only, or both. If it’s both, one factor is how many campuses they have. Online programs tend to pay slightly lower than campus ones, and programs with greater geographic restrictions will also cost more.
Course selection plays a role not in necessarily in price but in volume. Schools that offer a larger variety of courses will convert users better than ones with a narrow selection. Ones with only a handful of courses, and especially if niche, will be asked to pay more.
Form fields play a role too. Forms that require only the bare minimum convert better and can justify a market competitive price. Those that ask more personal and less common questions will have a lower conversion rate, lower lead volume and cost more per lead.
Who hosts the form is yet another factor. Some schools do not let the vendors design and host landing pages. This in my opinion is a mistake. In the beginning, firms could do this and still get volume. Specialization is the name of the game now. Companies specialize in obtaining traffic. The specialize in landing page design, in optimization of pages, in optimization of which pages go with which traffic sources, and so on. One page fits all will have a hard time competing in a one-landing page will not fit all world.
Taking the above into consideration, most vendors can quote an average CPA, but the smart ones now focus less on CPA and more on enrollment cost. Many vendors – those with affiliates for instance, more generally those who have various sources of traffic, see different performance across each. One price fits all means vendors must overpay for some and underpay for another. Again, this is because not all traffic performs the same. It’s the vary reason Google has their Smart Pricing, charging advertisers different CPC’s for the same keyword based on the source of the traffic.
A factor that this planner should take into consideration is whether the offer is a school that is already being marketed; if so, it will be difficult to get placement unless this person’s company is taking over all placements, ala Advertising.com and Apollo. Generally, only a new school that hasn’t been online will get consideration with the stated restrictions – one price, potentially one landing page, RFP.
A point to this planner is to have them prepped for the fact that most vendors will ask to host the form and transfer data to the school; it’s driven not just because of specialization but that many vendors will want to integrate the school into their existing education portals
As for potential volume, the largest of the online schools process more than 200,000 leads per month. Schools that have low budgets and lead caps will have a hard time getting an audience. This school will want to be able to accept at least 500 leads. The fewer leads they accept the more it will cost per lead.
So, what does all of this mean if pressed for an average CPA? Typical schools pay out – $12 to $20 for a shared lead (similar to mortgage model); $30 to $40 for average exclusive leads, and $45 to $55 for higher quality leads (better student to enrollment rate). But, I strongly suggest and encourage being able to track not just leads but enrollments and as granularly as possible.

Most fascinating to me about the email request for information is that it hints at a process that runs counter to today’s right pricing trend. We’ve started to hit a point where even the “shadier” vendors understand that quality impacts price, so it’s easy to take for granted that others might not understand the dynamics of a given vertical. I have assumed the above was equivalent to CPM, known by all. In case it isn’t, may the above help.

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