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Pay Per Lead: Good Idea Or Bad Idea?

This is an interesting topic, because it is multi-dimensional with different outlooks depending on your own situation. Pay per lead business models are nothing new, in fact Service Magic, now branded as Home Advisor has made a lot of money over the years by selling leads to businesses.

Basically, what it is, and what they do is they use a lot of on page optimization to rank for terms locally in organic search but they also drive traffic via PPC.

Home Advisor isn’t the only one doing this, there are others out there like Thumbtack, Mineeds and some others. There are also individuals that create “lead generation websites” where they build a site using their own content, add a call tracking number, and either rent the site out for a flat fee per month or sell the leads.

Now that you know a little bit about this, let’s dig deeper.

Pay Per Lead, Is It Worth It?

I’m fortunate enough to have a blog like this that brings in traffic from multiple sources and the readers of this blog are regular, local business owners, consultants, freelancers, marketers, etc. so when I answer this question, there’s going to be multiple answers.

For the business owner, paying per lead seems like a low risk investment with a good return on your investment, assuming you can close the deal. The problem with mass lead generation services though, is that you need to be on top of it right away, you need to contact the lead immediately.

Another problem with paying per lead is the fact that the leads typically aren’t exclusive, they are sent to about 5 different companies, and if the customer doesn’t choose someone, then the lead gets recycled in the pool to other competitors so you’re looking at competing with up to 10 companies at once. The average amount of companies a customer will contact for contracting work is 3. The chance for success is much lower when you choose a pay per lead service.

The good thing about pay per lead, is that if it isn’t effective for your business, you can simply stop immediately. No point in wasting money on leads that aren’t converting into customers, so you can easily move your money into another platform.

What a business owner also has to think about is what is the lead cost? Most roofers will pay between $50-75 per lead with Home Adviser but can usually generate 2 leads per $50-75 using pay per click with Google Adwords. Is Adwords a viable alternative? Absolutely, but it can also cost you much more per lead if you don’t know what you’re doing, if your site isn’t converting, and if you aren’t closely monitoring your adwords account.

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What About Pay Per Lead as a Business Model?

Now for you consultants and freelancers out there. You’re probably wondering if this is an effective business model you can put into practice so you can make some money. Yes, it is an effective business model.

I just don’t like it.

The reason I don’t like it is because it takes more work than just finding someone willing to give you up front money for their own website, SEO, PPC services, so in the long term you’re losing out on money and putting more effort into your business.

You will find out that even giving away free leads, can be a difficult task. I’ve done it.

You will find out that doing pay per lead, does not eliminate cold calling in order to generate revenue, you still need to cold call or use cold methods in order to find paying customers.

So really, it’s not that I don’t like it because it isn’t a viable method to make money, I just don’t like it because nothing is guaranteed, you’re exposed to more risk, lower up front payments, and more work is involved than if you were to just take the agency approach. I prefer the site rental model over the pay per lead model.

However, the right person can definitely make a lot of money offering pay per lead services over the long run.

When I wrote about ranking a business in 20+ cities for 60+ keywords with just on page optimization, I also think about what would have happened if that client (and many others) were setup on a pay per lead basis.

Let’s say a tree service wants to pay per lead, maybe $20 per lead. I think about a tree service in Texas I did some SEO for and built a website, instead of charging up front for the website which was around $1,000 or so at the time, and charged per lead, I would have been at about $50,000 in revenue.

I think about a carpet cleaning company that gets on average between 120-150 leads a month, even at $15 per lead, that’s $27,000 a year instead of the $2,000 down.

Bottom Line

For businesses and freelancers or consultants, pay per lead can be a decent thing, but it all depends on you. If you are a business owner, there are more effective ways, and more profitable ways to generate leads instead of using a pay per lead service. Individually focusing on offline measures and online like SEO, PPC, and other forms of inbound marketing can be more beneficial for your business.

For freelancers, consultants, internet entrepreneurs, pay per lead models can be revenue generators but in order to be effective you need to KNOW WHAT YOU’RE DOING. If you think this is the better model for beginners, you are mistaken. Short term, it’s a bad idea, long term if you know what you’re doing and have money to sit on for awhile, it can be worth it.

What are your thoughts? Let me know in the comments below!

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