Digital Horizons

Unlocking the Secret to High-Quality Leads and Lower CPL

• James Walker • Season 1 • Episode 19

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Can a higher conversion rate really give your business the upper hand in the competitive world of lead generation? Join us on the latest episode of Digital Horizons as we unravel the complexities of cost per lead (CPL) and uncover the secrets to outbidding your competitors for those coveted high-quality leads. We'll dive into the intricate relationship between lead quality and CPL, and provide actionable insights on how to improve your conversion rates by focusing on higher-quality leads. Learn how to calculate your CPL and why channel-specific analysis is essential for precise data insights.

Struggling with tracking and reporting lead quality in your digital campaigns? We’ve got you covered. This episode tackles the challenges posed by cookie deprecation and highlights practical strategies for enhancing your lead quality. Discover the power of pre-qualifying questions, the efficacy of treating lead forms like mini landing pages, and why prioritizing phone numbers over emails can make all the difference. Plus, we'll share tips on maximizing lead conversion through nurture funnels, real-time reporting tools, and aligning your campaign offers with your sales capabilities. Tune in to learn how to elevate your lead generation efforts and gain a competitive edge by focusing on quality and strategic investment.

The Digital Horizons Podcast is hosted by:

James Walker - Managing Director Walker Hill Digital
Brian Hastings - Managing Director Nous

Speaker 1:

Whoever is willing to pay the most for a lead is the one who's going to win. And so if you have everything sorted out on your back end, so you know that you can convert really high, so you don't care, you can pay more because you know your conversion rate is so high, you're going to win when it comes to your competitors. So if you know you're willing to pay $500 for a lead, your competitors are only willing to pay $100 because their conversion rate is so shit. But you're converting 50%. They're only converting, say, 10%.

Speaker 2:

So we're back on the Digital Horizons podcast. We wanted to talk about how much you should be paying for a lead. It's such a variable number, isn't it? Yeah, even a variable number within some businesses. They might have different lead values per product or cost per lead per channel.

Speaker 1:

Well, it is, and I guess we're going to get into this. But if you're selling a service for a product or whatever for $50 and you've got a higher end product for $5,000, then obviously you're willing to pay a lot less for that cost per lead for that $50 product. Yeah, absolutely.

Speaker 2:

Other way around sorry, yeah, there's going to be a lot of that, I think, in this conversation today, but today I think it'd be good if we could cover basics of cost per lead, cost per lead calculation, some of the questions we get asked in our roles as agency owners to do with cost per lead, and then maybe we jump into the way we approach CPL cost per lead for our clients.

Speaker 1:

Absolutely, because I mean, there's not a right number a lot of the time it's going to have to be well, how much do you value and what is your conversion rates? I mean, you could probably work it backwards using formulas. Well, you can do that actually. So we'll probably provide a bit of a guidance around that sort of thing. But I think that every business is going to have a different number. There's not going to be a set number and go yep, costs should cost you less than $ case?

Speaker 2:

Yeah, absolutely, and I find when we're talking to businesses who haven't started working with us yet, they're always keen to understand well, what cost per lead would we expect for them? And we'd be making it up if we suggested a cost per lead without having access to their data. Even once we get access to their data, who knows what the improvements that we're going to make are going to shift that cost per lead to? Until we start making these incremental changes, the best we can do is focus on what is it right now and let's make changes to improve it.

Speaker 1:

And I guess also you might be able to look at well, my cost per lead is X, that's fine, but what is the quality? Because you could have a very low cost per lead and they're all rubbish and your conversion rates, you know 2%. So then I guess you could look at it in a way well, what if we were to start targeting more quality traffic or start using better incentives for people to come through? That is more aligned with what our offer is, and so by doing that, you're going to then be able to convert more customers and you'll be willing to pay more for these leads versus what you're currently paying, because they are going to have a higher conversion rate?

Speaker 2:

Absolutely, I think we should spend a fair bit of time on this. Quality points as we all know, we could go and get heaps, shit tons of leads for a client, but they could all be awful Facebook lead ads that are just answering a competition response and get a really low cost per lead and pat ourselves on the back. But I think it's really important to keep that in mind that if we delve further, deeper and deeper into the best quality leads, the cost per lead is going to go up, but the quality of the conversion rate and the order value, or what that lead can generate, is going to increase as well. So it's a balancing act, I guess, to. To start us off, though, how do we look at cost per lead?

Speaker 2:

There's a bunch of different marketing channels directing traffic to your website. What we consider as a cost per lead is the total value of advertising spend divided by the amount of leads generated. That gets you a basic cost per lead. Typically, when I'm looking at a cost per lead, I'm thinking of a channel-specific cost per lead to make sure there's no inaccuracies in the blended data. But basically, when we're talking about cost per lead today, it'll be say, you ran some campaign activity on Google Search. It delivered 10 leads. We divide the total amount you spend on Google search by those 10 leads to get that dollar figure of how much it costs for every lead. So getting back to that quality topic, I actually done some notes in preparation for this podcast.

Speaker 1:

That's much more than I've ever done, because I was just thinking about that point.

Speaker 2:

When we report monthly on our digital campaign activity, all we have is the total leads that we tracked, that converted. Sometimes, when we're talking to our clients, they would have applied filters to that total lead bucket to say, oh well, those, you know, 17 of those 100 leads were people trying to sell us SEO activity, you know. But we don't see that. We just get the lead volume.

Speaker 1:

So I mean with the correct tracking, I feel like it's also unlikely that they're going to be coming through from your paid campaigns. Most of the time the client's probably looking at those and going, hey yeah, I've had a bunch of spam calls from it. I don't feel like they're probably going to be actually included in those lead forms that are being tracked back to your campaign, because they're likely bot traffic anyway.

Speaker 2:

Yeah, absolutely, that's what we've found is it's the clients that look at the total lead inbox. Let's say yes, they're not looking at which channel delivered that lead. They're just saying I've got 100 leads, Only 40 of them might have came from paid search. Let's say they're seeing all the dodgy ones. They're having to call these leads and find out they're no good.

Speaker 2:

The blended lead quality is being sort of attributed to the search or meta campaigns that we're running as well. So firstly, we like to sort of define well, which leads did we generate and what was the quality of those ones. And that's going to be getting harder and harder as the cookie gets deprecated in the future, but right now we can at least track whether it was from search and what that lead eventually did. But there is that next level. Once you get your lead into your client's sort of system, then they review that lead and it becomes either a marketing qualified lead or a sales qualified lead.

Speaker 2:

Yet another filter is well, how many leads did the sales team decide to call? And that can really blow out your advertising cost per lead versus the sales team's view on how many leads were actually generated. So, coming back to the quality point, though, I think there are certain channels that we find deliver a better quality or a better converting lead. I have found in the past things like Facebook, Instagram lead ads sometimes deliver a pretty attractive cost per lead, but the conversion rate is way lower than what I've seen of onsite lead conversions.

Speaker 1:

I'll kind of challenge that, because we've had, like we run, a lot of lead form campaigns and I think it's the setup is what is important there, Because I mean you can set it up so it will just get you bulk leads at a very low cost, but you can, I mean the way. We'd never run one without a lot of pre-qualifying questions in there, so we'd almost treat it almost like a little mini landing page. So people are coming through to the lead form. They are getting asked what is your budget? How long soon are you going to continue on? Are you looking to engage services or whatever it is, if it's a lead gen campaign? So by having these filtering questions in there that are very specific and not those kind of ones that, like we used to get people who would say I don't remember submitting that.

Speaker 1:

But, by the time that they've answered all these questions they're going to know that they've submitted it and so we feel that there are ways to increase it. But again that's going to increase your cost per lead, so it's not going to be as attractive lead cost as what you're talking about. With the low quality lead form submissions I know that have been a lot of businesses have used in the past.

Speaker 2:

Yeah, that's a great point. I'd rather add some barriers to that form and get the real cost per lead from actually converting the right people who have had to been asked questions like budget or knowing what the product or service is that they're inquiring about. If you leave it too open, people tend to just submit these forms when they don't even want the service and they forget about it. But you're right, if you treat it like your real landing page, then you can do that lead quality process improvement at the beginning, rather than capturing them all and then wasting all the sales team's time later 100% and it's just a bit of a hack there in terms, if you are using lead forms, never rely on the email address Like it's connected to their Facebook and I know myself.

Speaker 1:

I set up Facebook using an email address I probably set up 20 years ago and I've never checked since, because it's full of Facebook notifications, I think. And so if you're relying on hey, I've got a lead form, I'm just capturing emails and I'm sending out an email sequence. No one's getting those emails you need to make sure that you're either triggering a question to get it or you're getting their phone number and then triggering off an SMS campaign or automation to book them into a meeting because your contact rate on an email submission from a lead form is going to be so low. Yes, absolutely.

Speaker 2:

Yeah, it's almost like LinkedIn email address I can't even remember what one I used to start that. But asking for the phone number can also be a good filter for people saying why are you calling me? We had to request your input, that phone number. Sometimes, I think, in lead forms you can also ask it to pull in the data Facebook has for your phone number it already does.

Speaker 1:

That's what it does, and so that's. I mean the phone number is normally useful because it's what people are using for their two-factor.

Speaker 2:

Yeah, so you have to have a correct one, yeah.

Speaker 1:

Whereas the email address you're not getting that sent to. That's not relevant. So make sure you're using some kind of SMS automation Once people have filled it in. You're going to get a far better response rate.

Speaker 2:

One trick we use to try to improve the response rate on lead ads. We had a client that was getting lots of these leads through where they weren't expecting a phone call. As we asked the question at the end, the last question on the form is are you happy to receive a call from our team to talk about this? So they had to hit yes and then, when they called them, the change in perception or the welcoming of that call went up massively. But the other thing we found was the time between them submitting that lead ad and the call happening was so important. Sometimes clients would get to these leads a week later and people have forgotten. They're out of market, they don't care, they don't know what this call's about. But if it's 10 minutes, 20 minutes, even an hour later, it's a lot closer to that point when they wanted to know about this information or wanted to connect with you yeah, I filled out a lead form the other day and the guy called me like three days later and left me a voicemail and I heard it.

Speaker 1:

I was like I don't care about that anymore yeah, I know, I know. It was for a gym too, so I was like nah, I'm not going to call you back.

Speaker 2:

Yeah, should have got me five minutes. I was motivated for a very short period there and you've lost it.

Speaker 1:

So 100% speed to lead and getting in contact there is so important.

Speaker 2:

The other thing I've found the lead gen campaigns in those platforms really good at is adding more context to a nurture funnel. So if you do have some information about your product or you have an email, nurture or a series of content that you want to share with people, if it's attractive enough and appealing enough, you're only asking for their details to share that information with them. So they're requesting something so you can shoot them a video series or something over time and then hopefully build them up to be more ready for an actual phone call at the end of that lead series. But that's more top of funnel sort of activity trying to generate leads for the purposes of email communications and contacts rather than a direct call. And sometimes it's helpful for things where there's a bit of a research process that people have to go through. Yeah, have you used them for that sort of activity like trying to build nurture flows, or is it?

Speaker 1:

more just direct contact? No, definitely so. I guess anytime we're running campaigns, it would normally have an automation built on top of it. I'd never have it just set up and then hitting an inbox and going, hey, here's a lead you need to contact and then leave it for a team. It will have an immediate response via SMS, via email, typically going to a calendar, and saying, hey, look, thanks so much, let us book you in. Then one of our team would get a notification saying, hey, a new lead's coming in, make sure you're contacting if they haven't booked it in. And then we'd have a Notion Flow running out of that, and that would normally be the process. I think we probably should have called this episode how to approach a lead form campaign.

Speaker 2:

Yeah, we've gotten right into it. That's right. We've spent all this time on lead forms. Well, that's all right, but it is good, I guess it's a part of our lead form generation. How much should you pay per lead? Yeah, I think we've covered off lead forms.

Speaker 1:

Yes, they're good. I do think they're worthwhile, including a new lead gen strategy. But something that I've heard is that whoever's willing to pay the most for a lead is the one who's going to win. And whoever's willing to pay the most for a lead is the one who's going to win. And so if you have everything sorted out on your backend so you know that you can convert really high, so you don't care, you can pay more because you know your conversion rate is so high, you're going to win when it comes to your competitors. So if you know you're willing to pay $500 for a lead, but your competitors are only willing to pay $100 because their conversion rate is so shit, but you're converting 50%. They're only converting, say, 10%. You can pay so much more.

Speaker 1:

And so when you're thinking about, well, how much am I willing to pay for a lead, don't just think about your campaigns on the front end and what's my cost per lead. Think about what your conversion rate is, because that's also going to allow you to spend more to get more customers, but also, in the back of doing that, your brand's going to be getting out there more. Because you're willing to spend more on advertising, you're increasing your brand awareness, you can buy more leads and you can vote more, and so I think that's where you need to focus a lot of your time rather than focusing on.

Speaker 2:

I need the cheapest leads possible. Yes, absolutely. The best campaigns we've run are the ones where the brand or the brand owner is willing for us to push the campaign up to a cost per lead cap. Rather than just trying to improve on the cost per lead slightly, they can determine how much they're willing to pay and what their margin will be at the end of the day if the cost per lead was X or Y or $10 or $50. And the budget isn't capped. It's just as many as we can get up to that lead cap. That gives us the potential to keep pushing and extract as much out of the market as possible, knowing that they're still going to be making a profit at the other end because they've factored it into their margins.

Speaker 2:

You mentioned in your chat just then about getting everything sorted in the back end. You know making sure you convert those leads the best as compared to the competition. What sort of things can you be doing to improve your conversion rates, to make sure those cost per leads or the value you're spending on every lead is coming through and converting Sure.

Speaker 1:

I mean you need to make sure that what you're putting out there in terms of your campaigns, that the offer is in line with what you're able to sell. You need to make sure that it's appealing enough, but you've got to make sure that you've got the follow-up process to be able to convert. You're not going to get every single person on the phone the first time you call. You need to make sure, as we said, that speed to lead. You need to make sure that you've got automations going out there and you've got additional touch points. I mean, a good fucking sales team is going incrementally whilst trying to make sure you're decreasing your cost per lead or making sure you are generating leads on the front end. I feel like your conversion rate is equally as important, if not more. Yeah, absolutely. Every business is going to have different strategies in terms of increasing their conversion rate looking at their pricing, looking at their offer, everything else but I think that just making sure that you're continually increasing conversion rates is really key.

Speaker 2:

A few other things just housekeeping that you can do to make this possible, even tracking cost per lead or tracking all the way through to revenue. Make sure you've got phone tracking set up so that you can have direct phone numbers for each channel. If you do have ads in other platforms, Make sure you've got a live reporting dashboard so you can track the cost per leads in different regions, areas, markets or product categories, leads in different regions, areas, markets or product categories. And that was the next thing I wanted to talk about is the variable cost per leads depending on the service you've got. You can have a different margin for different areas of your business. If you've got one product, you're probably only going to have one ideal cost per lead, but that may also vary by region and you might have a varied cost per lead. You might be willing to accept a higher cost per lead in an area where you haven't done much marketing if you're entering a new market.

Speaker 2:

But one thing we've had quite a bit of success with and specifically in online courses and things like that, where there's a higher margin for the longer format courses and a lower margin for the shorter formats is breaking the course categories into their own cost per leads and instead of just promoting and cheering back to the client that we've reduced the cost per lead and gotten a good volume of leads, the client actually wants to see more. In the long form courses, the multi-day courses, it's going to be a higher cost per lead, so we break that out into its own CPL and we go well, that's our target for these types of courses, this is our cost per lead for these short-form courses and then we can start working to those CPL caps rather than just having one blended CPL cap, and it really helps us extend the budget into those campaigns that need it, that get them a higher margin at the end of the day.

Speaker 1:

Yeah, I think it's just really important that you're making sure that you're paying attention to your lifetime value of your customers. If you're judging your cost per lead by the value of that first sale, but you've got a very strong lifetime value for your customer, you can afford to take a loss or even break even on that first cost of whatever it is delivering the service. If your customers are just a one-off, so you might have a service or a product or whatever you're selling and they are not going to come back and buy from you ever again, you need to be making sure that your CPL is working profitably for that one sale. So just knowing how much you can generate out of a customer once you've acquired them is really important to understand, so that way you can measure. Then you have a better understanding to how much you're willing to pay for a lead there.

Speaker 2:

That's a really good point. A good example for that is say, a gym with the sign-up fee and the first month might be $200 and then it's $100 a month. A typical year for a customer is $1,200. If you're only focusing on the $200 of the first transaction and then working that revenue back to determine what margin you're comfortable with for a cost per lead, you're going to be massively underpaying or underbudgeting for what you really are going to get out of that lead. If your average customer lifetime value is two years, then it's $2,400 that that lead is actually potentially worth. And what would you be prepared to pay to ensure they come to you rather than one of your competitors if you're factoring in their lifetime value?

Speaker 1:

100% and that's going to give you a competitive edge on your marketing. Because if you understand that and understand that value of a customer compared to the next guy who's like, oh, I'm only going to get $50 off out of the first month and I'm only willing to pay $20 for a lead, based on that you're going to be willing to pay way more for a lead, which means you're going to be able to advertise more aggressively and you're going to get more customers.

Speaker 2:

Yeah, I think, and on that example, if there is a recurring cost or recurring spend from a client, you should be more willing to provide offers or discount that first component. If there's a joining fee or there's something that you can reduce, it's not diminishing the quality of your product because they are going to go to the full tilt cost ongoing. Your average lifetime value is worth it just to get them over the line in the first step. So yeah, sometimes those promotions work there.

Speaker 1:

So we'll make sure that we can link to in the show notes some formulas, because we use them every day. There's ways to really be able to calculate and work this out before we even work with a client. We're going to make sure that it's going to be feasible. For what? The aligned expectations? Because if a client comes to us and say, hey, I'm only willing to pay $20 a lead, and we're telling them it's going to be $150, and they're unhappy about it, but we can put the numbers in front of them and explain why, then it just makes a really good relationship from the back, from an engagement point of view, but also from the business's ability to then grow and generate more income for themselves.

Speaker 2:

Yeah, I definitely don't think this topic is done and dusted, so we scratched the surface a bit, but it was good to get into it and we'll cover more in the future.

Speaker 1:

I want to get back into the lead form stuff as well. There's so much to do there. They are powerful. Like we run, when we're running campaigns, we smash the lead form, so we smashed the lead form. So definitely a lot more to talk about.

Speaker 2:

Yeah, a whole other topic on that that we just sort of stumbled into.

Speaker 1:

All right, well, thanks for listening. That's been awesome, thank you.