Understanding Lead Generation
October 02, 2020 by Matt Buchanan

Understanding Lead Generation & Your Role In Its Success

For any service company to survive and thrive, there must be a consistent flow of new customer opportunities coming in that puts appointments on the call board and keeps employees busy. Whether you are a one-man shop or a large company with hundreds of employees, demand generation isn’t a luxury, it’s a necessity.

For most companies that are providing great service to their clients, repeat business and referrals should make up the majority of their work. But the reality is that no matter how good you are at servicing your customers and keeping them happy, if you are trying to grow you are going to rely on various methods of lead generation in order to attract new customers and keep your call board full.

So, how should you be measuring the success of various lead generation programs? We’ve been generating exclusive leads for our clients for over 15 years, and in doing so have also worked with lots of other lead generation companies in our space. So here are some things we think you should be considering.

Understand What You Are Buying

Before we get into the metrics you should be analyzing to determine success, it’s important that we create some context around what lead generation is and what it isn’t, and the implications that has for your business when it comes to a successful lead generation program.

What is a lead?

Generally speaking, a lead is an opportunity. What does that mean? It means that whatever you are purchasing, whether it’s a form lead (that comes to you via email) or an inbound phone call, there is an opportunity to win their business because the lead has an intent to use your service.

What isn't a lead?

A lead is not a completed job or booked appointment. Again, a lead is a great opportunity for you to convince someone that needs your service that you are the right choice for their needs. It’s a chance for you to gain their trust and build value in what you do, such that you have a chance to service them and turn them into a life-long customer. But that is something only you can do (or not do, depending on your ability to sell your company/services), not the lead generation company you have hired to provide you with opportunities.

Understand The Role You Play In Success

Because lead generation programs are designed to give you opportunities, it’s important to recognize your role in turning those opportunities into customers.

To put it bluntly, you have to put in the work to make any lead generation program successful. And if you aren’t willing to put in the work, you won’t succeed and ultimately your business won’t grow, and statistically speaking, it most likely will shutter.

If you aren’t willing to do the things necessary to take leads (opportunities) and turn them into actual customers, then no lead generation company can help you. For instance, at Service Direct our focus is on driving inbound phone calls to our clients. How likely are you to succeed with our program if you don’t answer your phone? The answer is easy: there is a 0% chance you’ll have success with us. For other lead generation companies, their focus is on generating form leads that are shared with you and maybe 3 other companies. If it takes you 3 days to respond to those leads, how likely are you to win their business? You aren’t.

At the end of the day, the bulk of success is dictated by the company, not the lead provider. We see that reality play out day after day within our platform. We have clients that consistently generate 20X returns with our service, while others see no value. For each, we are doing the same thing: making their phone ring with potential customers. But some obsessively focus on how to maximize those opportunities and turn them into lifelong customers, and others don’t.

Understand the Key Metrics That Determine Success

Appointment Rate

Regardless of what type of service you provide, ultimately you’re hoping through lead generation methods you will be able to get in front of a potential customer and win their trust and their business. So one metric you should be focused on is the percentage likelihood that a lead becomes an appointment.

For some lead generation services, that number may be as low as 10%, while you may experience a much higher booked appointment rate with other services. On its own, it isn’t enough to determine success (more on that in a second), but it’s a metric you should be obsessed with. How can you go from 20% to 40%? Because guess what, you have competitors that are probably at 60%. What are they doing that you aren’t? Put in the work to understand how you can improve, and you will!

But it’s important to understand this: you are never going to achieve a 100% rate with any lead generation program, or any marketing service for that matter. If you’ve ever done direct mail pieces or hung door flyers, was the expectation that every postcard and flyer would produce a customer? If you’ve ever bought clicks to your website, was the expectation that every click would result in a customer? Of course not. You don’t judge a marketing channel based on whether or not it works every time. Instead, you should be judging it on other factors...

Cost Per Appointment

Lead generation companies can offer a wide variety of lead types. Ultimately, what type of lead you are buying will determine 2 things: the lead cost and the appointment rate, which taken together will determine your cost per appointment.

Let’s take 2 examples. Shared form leads and inbound phone calls that go exclusively to you. With shared form leads, it stands to reason that you are less likely to win their business simply by virtue of having more competition. Because of this, they are typically much less expensive than exclusive inbound phone calls provided by pay per call lead generation services.

Here is some simple math:

Key Metrics Shared Leads Exclusive Leads
Lead Cost $10 $30
Appointment Rate 15% 65%
Cost Per Appointment $66 $46

 

In the above example, which lead was really more expensive? Sure, the phone lead is 3x the cost of the shared form lead, but when you factor in the likelihood of actually turning that phone lead into an appointment versus the shared form leads, it’s actually considerably more cost-effective.

So don’t just focus on the actual cost of the lead, focus more on the cost of the thing you need the lead to produce: the appointment.

But you can’t stop there...there is still more to analyze.

Average Ticket Price

Not all leads are the same, and therefore not all customers produced by those leads are going to be the same. When comparing shared form leads to exclusive phone leads, it’s also important to track the average ticket price you generate when you do win someone’s business.

What will you typically find?

In most cases, the average ticket price for a shared form lead is going to be less than an exclusive phone lead. Why? When you think about it, when someone submits their information into a form knowing they are going to get multiple quotes from providers, they are most likely price shopping. So even if you win their business, chances are it’s because you outbid your competitors. This drives down your average ticket price. With exclusive phone leads, customers aren’t typically as price sensitive. That’s not to say they won’t inquire about price or that they aren’t value conscious, but because of the exclusive nature of the lead, you have a better chance of not only winning it but also generating more revenue from it.

In fact, here are some examples of our client-reported revenue from our exclusive phone leads compared with the industry’s leading shared form lead provider. As you can see, for plumbing leads for example, our clients report their average ticket price to be 40% higher than jobs won from shared leads:

KEY METRICS AVERAGE TICKET PRICE
Industry Total Revenue Booked Jobs Exclusive Leads Shared Leads Percent Difference
Plumbing $245,131 384 $638 $458 39% ↑
Electrician $57,504 114 $504 $317 59% ↑
Appliance Repair $11,048 48 $230 $170 35% ↑

 

But like every other metric, and regardless of which lead service you are using, you need to continually optimize your business and processes around that average ticket price. Within our platform, we constantly see clients that generate 3X more revenue from the same types of leads as other clients. Why? Because they continually train their employees to build more value in their services and are able to generate more revenue because of it.

Actual Customer Value (Lifetime Value)

As we said at the beginning of this blog post, for any healthy company, the bulk of their work should be from existing customers or word of mouth referrals. So it’s important to remember that when judging an online lead generation service. The goal of those programs is to generate net new customers to your business. But you shouldn’t judge the value of that customer solely on the first job you do for them. Why? Because if you’ve done that job well, 2 things will happen:

  • They will use your service again
  • They will tell their friends and family members to use you

When those things happen, the lead generation program that generated the initial customer contact doesn’t typically get credit, but rest assured had you not purchased that lead, you wouldn’t be reaping the benefit of the ‘free’ business that was produced by it weeks, months or years later.

So it’s important to ask yourself: what are you doing to maximize the value of a customer you paid for? Some companies do zero remarketing, nor do they ever ask for reviews and referrals. Others are constantly performing outreach to their customer base to offer their services or ask for referrals. Which do you think sees the higher lifetime value of a customer?

REturn on investment

At the end of the day, a marketing program’s success is ultimately determined by the Return On Investment it produces. As we’ve discussed above, that number can vary wildly between programs and between companies within the same program, but the formula is simple:

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Every company has a different ROI they are trying to achieve. For some companies, they are so good at maximizing the long-term value of customers they are willing to break even on their marketing spend to acquire that customer. Meaning, they are ok with 0X ROI. For others, they need to see 10X+ ROI in order to run a profitable business (hint: if this is you, it’s most likely the case that your customers aren’t very happy with the services you are providing which in turn means most of your new business has to be purchased through lead generation efforts and isn’t occurring naturally through repeat business and word of mouth).

But generally speaking, a 3-4X ROI is considered the minimum ROI that is warranted to continue using a marketing service. With Service Direct, our lead generation platform allows our clients to track their revenue with our service, so we are fortunate to have a lot of insight into our clients’ ROI. On average, our clients see an 8X ROI with our service.

Conclusion

Hopefully, if there’s one thing you’ve come away with in this article, it’s recognizing that you play a massive role in determining your ROI, and ultimately your success, with any lead generation company. If you have done everything possible to optimize your business around the key metrics for success and it’s not working, then your money is probably best spent elsewhere. But if you haven’t focused on putting in the work to win more business and maximize the value of that business, then you owe it to yourself to get better, which in turn will produce a higher ROI for your business.

 

 

 

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