Wednesday, May 27, 2009

4. Lead Retail: Buying and Selling Leads

buzz this

There is more to buying and selling leads than meets the eye. For instance, how do you know that you are buying leads for the best price? Are you aware of who you are buying leads from; if you buy from lead provider A, how do you know that provider A hasn’t just bought the lead from lead provider B who has a much lower reputation? Should you buy leads that are exclusive to you or pay less for a lead that is also sold to a handful of your competitors? Conversely as a seller you need to figure out the same questions in reverse, except that you need to optimize these decisions in real time so that there is no procrastination period between when a consumer hits “Submit” and the lead buyer’s sales agent receives the lead.

How much should I pay for Internet leads?

Obviously this is a broad question and but largely dependent upon a few critical factors:

  1. Which industry you are in
  2. How many times the consumer’s information is going to be resold/split
  3. How picky you are about your filters i.e. if you are buying mortgage leads do you only want leads in certain states and for certain LTV ranges for instance?

The other big factor is also market demand, which obviously creates macro ups and downs in the price of leads. At the time this post was written (May 2009) mortgage leads are slow in comparison to leads for people who need credit card debt help, for example. However, the table below is a very approximate attempt to characterize the average price paid for leads.

Lead Type

Companies lead shared with

Cost of

shared lead

Cost of exclusive lead

Insurance

6-8

$5 - $8

Not available

Education

3-4

$20 - 30

$50 - 60

Mortgage

4-5

$15 - 20

$35 - 40

Automobile

2-3

$12 - 25

$30 - 50

Debt

3-4

$15 - 18

$25 - 40

Should I buy exclusive leads?

Exclusive Internet leads are a waste of money. Consider this, the average home buyer who uses the Internet to research mortgage quotes will submit their information 2.3 times. There is no such thing as an exclusive lead. The advantage you are trying to achieve of not having to compete with others can largely be eradicated by being the first company to call the lead. Investing in a quality lead management system and a solid sales training program normally takes care of this; and for less money.

How about buying leads through an exchange?

The concept of a lead exchange is a great… in theory at least. Sellers of leads submit leads to the exchange and buyers enter orders for leads. The exchange matches the highest bidder for a particular type of lead and a transaction takes place. Conceptually an exchange eradicates the friction of market imperfections like the difficulty of negotiating with a vast number of sellers and is thus likely to maximize efficiency for both buyer and seller.

The concept has attracted quite a number of players over the past few years. The following is a list of the key exchanges by vertical in the order of quality and possibly size (in my opinion):

Exchange Name

Main Verticals Covered

LeadPoint

Mortgage, Debt, Education

Reply!

Auto

Detroit Trading Exchange

Auto

LeadPile

Auto, Education, Insurance, Real Estate

As yet, none of the lead exchanges have really lived up to their promise. They have attracted customers but have generally struggled to get the highest quality leads to flow through them. Most larger buyers use lead exchanges as a back up for unusual spikes in volume and rarely for much more. There are undoubtedly things that lead exchanges could do to make themselves more attractive to buyers, but that is a subject for another post.

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