Insider Perspective

Pay-per-lead: a penny wise, pound foolish approach?

Many clients ask for a pay-per-lead pricing model when embarking on a telemarketing campaign. We fully understand that – at first glance – this approach may seem to be the most cost-effective and risk-free way to generate leads. After all, if you’re only paying for leads delivered and not for time wasted on dead-ends, then you’re maximising your return on investment, right?

Unfortunately, pay-per-lead is rarely as straight-forward and stress-free as this. In the almost 30 years that we have been running successful B2B telemarketing campaigns, we have learned that paying per lead rarely works out to be in the client’s best interest. This is because there are several unexpected costs and challenges that reveal themselves further down the sales pipeline.

Let’s unpack these drawbacks and examine why the pay-per-lead pricing model includes a plethora of hidden risks that can undermine the success of your campaign.

The pitfalls of paying-per-lead

The pricing model informs the client-agency relationship:

In the pay-per-lead scenario, the agency carries the risk of success or failure. Ultimately, this means that the agency needs to deliver a certain quantity of leads to cover their costs – and if this target is unattainable due to poor data, a complex value proposition or a lack of clarity about how a lead should be defined, then the agency may feel that they are not being fairly rewarded for their efforts. This could undermine the trust between agency and client, leading to decreased motivation and lacklustre campaign outcomes. In the worst cases, this breakdown of trust could also drive agents to treat prospects poorly – damaging their client’s reputation.   

A focus on lead quantity over quality:

When a client rewards the lead generation agency based on the quantity of leads they deliver, it encourages this team to focus on lead volume as opposed to lead quality. Because they’re not being compensated for the time it takes to nurture more complex (and often higher value) leads, teams that are only paid per lead focus on quick wins and run the risk of handing these over to the sales team too early or before they have been properly qualified.  This then generates additional costs further down the funnel, as sales teams chase non-existent interest or prospects who do not have the authority or budgets to make a purchase. Not only does this waste precious sales time, but it may also de-motivate your sales team, leading to higher staff turnover and further expenses for you.  

A tendency to burn through data:

Lead generation teams focused on making as many sales as possible to optimise their ROI will tend to burn through data to get as many quick successes as possible, at the expense of the (often more valuable) prospects that might require careful nurturing until they are sales-ready. This results in a costly loss of hard-earned data. Once contact has been made, this data may not warrant re-use without the risk of spamming these potential prospects and again, running the risk of damaging the client’s reputation.

No new market intelligence:

When you only pay for the quantity of leads delivered, you’re not investing in the quality of your market intelligence. Your telemarketing agency will not be able to spend enough time connecting with each prospect, gaining insights that could be of great value to your campaign going forward. By taking the time to build human connections with your clients, your telemarketing team could unveil pain points and business challenges that you are not aware of. But, you’re unlikely to gain these insights if you’re not willing to pay for the time that it takes to obtain them. 

No value added to your data:

One outcome of any well-run telemarketing campaign is a clean, profiled database that can help you to target the right people accurately with the right message. It can also increase the success of your future sales and marketing activity. However, if you are only paying your agency for leads delivered, they can’t afford to spend too much time cleaning and profiling your data.

When you think about it, a pay per lead approach is a one-dimensional strategy that favours lead volume over a range of other positive outcomes – including lead quality, valuable market insights, a more accurate and targeted prospect database, and a mutually beneficial agency-client relationship.

With this model, it cannot be viable for your agency to provide the additional layers of value - the bespoke reporting, expert data management or proactive account management - that represent a true partnership approach.

Most experienced agencies don’t offer pay-per-lead  

Over the past couple of decades, we have agreed to a few pay-per-lead campaigns, for the most part where we have already tested assumptions through a proof of concept or pilot campaign. However, in our experience, these are rarely successful. Only in a few exceptional cases, where clients have a short sales cycle, a relatively low deal size and clear objectives such as cross- or up-selling to existing clients, has it worked.

When you have a longer and more complex sales cycle, targeting senior C-level executives, this calls for a deeper level of relationship-building with your prospects. Prioritising quick wins – which is essentially what happens with pay-per-lead programmes – may not be in your best interest in this context.

Paying per hour builds better campaigns

There are without doubt some scenarios where a pay per lead model is the best fit and can deliver what the client needs, but be clear - these models represent two very different types of offering. If you want to gain true value from your telemarketing campaign, it is advisable to invest in your agency’s time and expertise rather than only leads delivered. Paying per hour fosters a more multi-dimensional approach to lead generation that is much better suited to complex B2B propositions and sales processes that are based on longer-term relationship building.

A time-based pricing model frees your agency to do more than deliver as many leads as possible. Of course, lead volume is critical, but so is the quality of these leads and the relationships that are built with prospects during the lead generation process.

When you pay your agency per hour, you’re investing in the time spent building relationships with potential prospects, gaining maximum value from your data, and enhancing this with new market insights. You’re also paying your telemarketing partners to spend time qualifying each lead properly – hopefully in line with an agreed set of criteria – before these are even passed on to your sales team.

Compared to pay-per-lead, the per-hour approach is more strategic because it caters for both quantity and quality of leads – throughout every stage of the customer journey. It enables your agency to engage prospects in productive conversations, ask open questions, discover new challenges, and generate demand – value they may not have been able to add had they been compelled to focus on quick wins.

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