Is Lead Generation Worth It? The Facts & The Fiction

Written by Alex
Published on January 8, 2021

So, you are considering lead generation as a way to drive customers to your business. Great! Hiring a lead generation company is usually worth it, but mileage will vary based on a variety of factors. What determines a worthy lead?

  • The quality of the lead.
  • The competition within a specific market or niche.
  • Your ability to convert leads into paying customers.
  • What a paying customer is actually worth in your market.
  • The type of agreement made with the lead generation company.

It’s important to look at your business closely with the above points in mind before going all-in with lead generation. So is lead generation worth it for you? Read on as we examine each factor in more detail.

lead generation is the missing piece

What is a Quality Lead?

Quality leads are prospective customers actively looking for a service or product with the intent to buy and the funds to do so. The best leads are qualified by the lead generation company and exclusively generated for your business.

Qualified Leads

A lead is qualified when the first contact with the lead (usually a phone call or form submission) is properly vetted by the lead generation company. Obviously, spam or marketing calls should not be considered a qualified lead. Before signing up with a lead generation company, make sure you will only be paying for those that are qualified.

Exclusive Leads

Exclusive leads are the creme de la creme of lead generation because they are generated exclusively for your company. That means the form submission or phone call is routed directly to, and only to, your sales team. This differs from non-exclusive or “recycled” leads which are sent to many other service providers in your local area, aka your competition. The more contact your lead has made with other service providers in your area, the more likely you will have to come down on your price of service, resulting in a bidding war.

Remember though that regardless of the quality of the lead, you are always subject to the competition in your market, which brings in the next consideration.

leads generated

Lead Generation in Competitive vs. Non-Competitive Markets

When considering if lead generation will be worth it, analyzing the competition within your own market is a good move. Buying leads in a competitive market will generally cost more, but it can be the fastest way to gain new customers without investing thousands into other marketing efforts that may not bear fruit immediately. In a less competitive market where leads cost less, the same money spent on lead generation might also be put into a search engine optimization (SEO) campaign to help your business and brand self-generate more leads long term. In both cases, lead generation will almost always be worth it, as long as you choose a company that really understands the customers in your market and generates quality leads.

Determining the Competition in Your Market

So how do you determine the competition in your market? A simple google search can be quite revealing! For example, if you are a roofing company in Boston, search roofing in Boston. There are three places you will want to look for competition:

  • Google Adwords: Are other companies actively paying Google for a top spot on the search results? Count the number of businesses that show up with an “ad” next to their website. If there are a few, the market may be more competitive.
  • Google Maps: The fact that google map listings have integrated reviews, websites, phone numbers, addresses, and other important business information makes it the go-to place for customers looking for local services. Click on the “more businesses” tab and see how many businesses are nearby.
  • Google Organic: Below the map on the search results page, are the companies that have put more emphasis on SEO techniques to rank their own brand. Often, in competitive markets, these top companies will also be top competitors in google maps.

Check out the competitor's websites to see what types of offers and services you’re up against. Chances are, your leads are also scoping out these same sites. What is it that you can offer that these guys can’t when you finally connect with a lead?

magnet bringing in the qualified leads

Converting Lead Generation Prospects to Paying Customers

Leads cost money, and unless the prospect is converted to a paying customer, you’re going to lose out on your investment. So, paying for lead generation is really only worth it if you and your team have processes in place to effectively handle the new business and close the deal. Here’s a couple things to look at:

1. Customer Relationship Management (CRM)

Getting more customers means that you may need additional resources to handle an increase in business. Whether it’s hiring another customer service person or overhauling any technology you use to manage your customers, it’s important to stay organized. The best way to accomplish this is to use a CRM to organize leads into different stages, such as first contact made, appointment booked, deal closed, and so on.

Most CRMs have the ability to send email campaigns, text messages, and phone calls directly to your prospects, and we all know that timely communication is essential to converting leads into customers. By using a CRM, you can easily see exactly when and how many times you have contacted the prospect. You can even automate most of the process!

2. Sales & Closing Rate 

You don’t need to convert every single lead to a customer for lead generation to be worth it, but you should examine your closing rate with current customers. When a customer calls or books a consultation, what percentage of them actually purchase your product or service? Monitoring your closing rate over the course of a few months should give you an idea of how likely you are to see a return on your lead generation investment.

3. Your Overall Reputation

What’s the word on the street about your company? How are your online reviews looking? Social trust has a huge influence on prospects deciding to go with your company. If your reputation is not so stellar, you may consider investing in a reputation management campaign before going all out on lead generation. 

sign saying to get more leads

What a Lead Costs, and What Your Customers are Worth.

Lead generation costs can vary widely from market to market. It’s crucial that you evaluate what a customer is worth in your specific market. What you should be paying for each lead needs to factor in your total revenue and costs associated with each of your services. 

For example, a carpet cleaning company may expect to charge $300-$500 on average per customer for services, and the total profit might be 50% of that after paying for transportation costs, equipment, employee wages, etc. Since the ticket cost is lower for carpet cleaning than kitchen remodeling, for example, leads for carpet cleaners are going to be much less expensive. Kitchen remodelers, with a much higher average ticket price, can expect to pay a lot more for each lead because each closed deal means a much higher payout.

Choosing The Best Lead Generation Agreement

Lead generation agreements are often offered in a few models:

  • Pay per lead: in the pay per lead model, you will be changed for each qualified lead that is generated by the lead generation company. This is the simplest agreement, and most popular.
  • Commission: leads on commission can be a great way to start getting leads with limited up-front resources, because you only pay the lead generation company after the lead becomes a customer. However, commission-based leads will eat up a larger percentage of your profits for that job.
  • Flat Rate: flat rate lead generation means that you’ll pay a weekly or monthly fee for leads. This is a very simple arrangement and can be profitable, just be sure to track lead quality to make sure you are getting what you expect.

Ready to go down the lead generation rabbit hole? The best way to find out if lead generation is worth it is to book a consultation with a few lead generation companies. A reputable lead generation service will have a variety of offerings and will work with you to determine an arrangement that is profitable for everyone involved. 

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