Renegade Entrepreneurs of the Pacific Northwest, Episode #6: Should a Business Owner Buy Leads?

Should a business owner buy leads? How do you deal with all the email inbox offers you get?

  • What is the difference between a lead and a prospect?
  • What is Marketing Math?
  • How to choose the right provider of quality leads?

Easy Marketing Math You Need Now: Mandatory Numbers to Consider Before Buying Leads or Running More Ads

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Show Transcript:

Jesse Stoddard: 00:07

Jesse Stoddard here and with me is Keith Einix and we are here for another episode of Renegade Entrepreneurs of the Pacific Northwest and this is episode number six. We’re excited. We’re going to talk today about lead generation websites and companies that are approaching you to sell you leads in your industry. But before we get into that, let’s talk about our in-person meeting we had. We have a Renegade Entrepreneurs of Pacific Northwest Meeting once a month here at Fannit and it was a really good meeting in February. Do you have some highlights or anything you want to mention about it?

Keith Einix: 00:41

Well, first off I want to mention that there’s food, so if you’ve never gone before, there’s going to be free food there. That’s a big one right there. And it was good. It was really good.

Keith Einix: 00:50

Thanks for putting that together, Jesse. And then on top of that, we had a great showing. We had some really neat people come. it wasn’t just one type of person coming into the meeting. We had local businesses, we have professionals, we have consultants in different industries, so it was a good mix of people and we all had really good things to say.

Jesse Stoddard: 01:12

Let’s talk about that. We’ve had a couple of guys that are going to have a heating and air conditioning business and air conditioning company. A friend of mine who owns two dental practices came. We had actually a videographer and a photographer, weddings, and businesses. And then there were some people from insurance, mortgage, there was a young mortgage broker who’s a hotshot now doing really well in the social space and he had some really good information on social media marketing and actually for that space.
Jesse Stoddard: 01:44
That was cool because he said that a lot of the older folks told them not to do those things and he did them and start getting loans and now they’re changing their tune. That was pretty funny. Kind of renegade marketing that he was doing. This is really cool. And then, we had, an owner of a personal training studio, so yeah, it’s a variety of businesses and really good thing. So what stood out to you that you thought was worth sharing today?

Keith Einix: 02:07

What I really like about those meetings is it’s not just about “Hey, come and hear a pitch fest.”, or anything like that. Really the whole meeting is, and you do pitch a little bit on your services at the very end, but the whole entire meeting is really about just trying to help business owners with a better self-management and better company management and better marketing management and so on.

Keith Einix: 02:27

And it’s just really good information. And one of the things that stuck out to me big time was your time management. You went through four different factors that can, you know, time management. And one of those things that really stuck out to me that I actually implemented right away that day was, how you as a manager, interact with your employees. And one of those big things was interrupting them when we were talking about, your ability to focus and how you can only do one thing at a time and maybe you can, it’s not because maybe you can switch back and forth really quick, but you can’t literally focus on two things at once. And so I was really thinking about that with my employees and, there’s moments where we’ll will, I’ll be thinking of something, I’ll go upstairs, I’ll say, “Hey!”, and I’ll interrupt them from what they’re doing.

Keith Einix: 03:16

And I was like, “Man, we got to fix that!”, because that just totally derails them from what they’re doing. And so we came up with his little a postcard system that we have these little Fannit postcards and if it’s turned around, to show the Fannit, it’s like, “Don’t interrupt me” if it’s turned around the other way, it’s like, “OK, I can be interrupted.” It’s fine. The “doctors out”, the “doctors in”. Yeah basically, so, I thought that was a brilliant thing we went through, didn’t necessarily have to do with marketing, but just good business management practice and I thought that was really good. That’s awesome. Thank you. There was a lot of other things. The hot seat was really good. Yeah. Very good. And if you are interested in checking it out, you can come and we have a Meet Up group, a Linkedin group, Facebook group with a calendar and schedule and, you can come and check that out, if you’re an entrepreneur, small business owner definitely recommend to see what we have going.

Jesse Stoddard: 04:06

So yeah, the first visit is free, right? That’s right. And then after that, it’s very inexpensive anyway. So it’s really not about the money, it’s more about, do you feel like you want to be in a mastermind, a group where you can actually grow your business and with like-minded entrepreneurs? So. OK, shall we move on? All right, let’s talk about these, uh, this lead generation now, last time we talked about review sites and some of those websites also sell you leads or advertising and then there’s some websites or providers that just offer to sell you leads directly. So an example would be, you get an email in your inbox and it says, “Hey,” if you’re a painter, “Hey, I’ve got people that want home improvement lead, services like painting, it’s only $7 per lead or $100 per lead”, whatever it is.

Jesse Stoddard: 04:46

And then you got to determine whether it’s this is a scam, whether this is a legitimate offer and whether it’s worth your time and money. You also have hybrid companies that are, doing review sites and selling you leads like Home Advisor, Angie’s List, or there’s Yelp that does reviews, plus basically sells you advertising. So, how do you decide if you’re a small business owner, whether or not even to participate in this? What are your thoughts on that in general? First?

Keith Einix: 05:11

Yeah, well when you first entering a business, it’s expensive to do anything else. And when you’re a small business owner, you’re just thinking, well, how can I increase the number of reviews? Amount of reviews you’re getting, amount of case studies you’re getting or you’re trying to get people to refer you, so you’re really focused on that, which is good, which is great, but there are some things you can do to really bolster the number of referrals you’re getting, the number of leads you get.

Keith Einix: 05:40

And the first thing I wanted to really focus on was you got to actually start with a definition of what a lead is because everybody uses the word lead, but you’re actually not getting a real lead from these sources. If you’re using Home Advisor, Angie’s List and so on and so forth. Really the term prospect is a better word for it because if you were to define a lead, a lead is really something that you have in your client relationship management tool. So, and when I say that I don’t mean like some fancy software, I mean literally like somebody calls in and you’ve put them down on the schedule to go see their job. You haven’t, if they’re not in there, if they called in and they haven’t been put in there and that’s not a lead, that’s really more of a prospect.

Keith Einix: 06:24

It’s somebody who called in, but they ended up not being qualified enough to actually go out and see the job yet. Or if you are a personal services, it’d be like they ask for a consultation with you and, you’re going to have that free consultation. That’s a lead. They actually said, please call me. Or if somebody says I’m kind of interested, have a couple of questions on the phone, but they don’t go into that consultation. That’s not really a qualified lead yet for you. It’s just a prospect. So, that definition there is really important. Because that changes how you think about your avenues of where you’re getting your prospects from and your leads from. If you think back to referrals, what we mentioned at first, your referrals tend to close into a qualified lead, like a hundred percent of the time.

Keith Einix: 07:15

If somebody gives you a referral, somebody who needs work, it’s probably because that person requested it and they’re really high quality a lead. They’re not really a prospect. What you’ll find is from these other sources, you really are dealing with more prospects and they tend to close in service space industry, they tend to close about 50 percent of the time into an actual lead. A prospect closed about 50 percent of the time. So that means if you’ve got 10 calls from, Yelp or Angie’s List or whatever, probably only five of those are actually going to show up into your CRM or your contact list. You’re probably only going to go actually see five of those. Now, typically speaking, you are only going to close about 50 percent of those into a job. So actually out of 10 you’re only closing 25 percent, you know, so that, that’s kind of a general number that you can put on.

Keith Einix: 08:13

OK, what’s my close rates from an actual prospect to a job and what can I expect from where I’m buying, and they’ll say buy leads from us, but you really buying prospects from them. So on Home Advisor says, “our leads are only $20.” You might be thinking in your head, “A lead, great!, that’s somebody I’m going to actually go out and see!” That’s not the case. That’s not the case. In fact Home Advisor is going to be way less than the typical is because you’ve got a lot more competition in that space in comparison to say a Yelp. Yelp is going to be a lot less competitive because if they’re giving you a call it’s probably because they’re only wanting to work with you. They didn’t get sent out to five other competitors for bids it would have to be that owner who reached out and do that themselves.

Jesse Stoddard: 09:00

Before, you were telling me about the marketing math. Let’s talk about that. Like compared to paid search, like Google Adwords, explain that too.

Keith Einix: 09:09

Yeah, so you, you might think a lot of people will look at a paid search, paid search on Google or Bing, or even in, you know, Angie’s list or whatever, they’re not all the same, why, because of the ratio of prospect to lead. And you’d really have to understand that from a math perspective. So I’m going to give you a few numbers and I’m going to use specifically Google Adwords and I’m going to use Google Local and organic. OK? Google Local and organic is fantastic. Awesome. But we do tend to find that Google organic and local converts at a little bit less of a rate than paid search. And there’s a very good reason why.

Keith Einix: 09:46

So let’s take a typical average conversion rate from prospect to lead from organic and local about 50 percent. OK? Well, if you take a good PPC campaign that you’ve really drilled into your target market and you’re buying the right keywords, what tends to happen on PPC is that you’re only getting people clicking who are more at the bottom of the funnel of the buyer’s journey. Remember, the buyer’s journey is going to be browser, compare and buyer, right? So when you do paid search, you don’t try to purchase those, browser keywords, you’re not gonna get a lot of bottom of the funnel conversions or the comparison people you’re not really interested in those. You’re really looking at the bottom of the funnel, the buyers, and those types of keywords. Now, the reason why you have a higher conversion rate on paid search is because, if you have more of a “buyer concept” as opposed to organic, you’ll catch people all throughout the funnel on that.

Keith Einix: 10:40

If you have more of a buyer, click, well, you’re going to have a higher prospect to a lead close rate and the ratio is pretty high. Actually in comparison, we will see a paid search prospect closing to lead at over eighty percent, right? Whereas a organic might close from a prospect to lead 50 percent. So let me just give you a couple scenarios here. Let’s just say your average lead cost is $50 from organic. OK, well, $50 from organic means that you get a job, an acquisition of a job about every $200, right? If your close rate 50 percent, into your from prospect to lead, 50 percent close rate from lead to job. Alright? So however, if you have a paid search campaign and you’re getting leads at $70 lead, but you’re prospects are closing leads, even though your spit at a higher rate, even though you’re spending more like $70 instead of $50 because you have a much higher close rate from prospect to lead and he’s still have that 50 percent close rate on the sale, like you’re still closing them into a job at 50 percent.

Keith Einix: 11:53

So that doesn’t change. But your prospect to lead close rates higher, you’re actually acquiring at about a $168 per sale. So actually even though you’re spending more per prospect, you’re closing at less per acquisition of a job. So it’s really important to keep that in mind and to have a good understanding. Like if you’re OK, let’s just say Home Advisor because that’s a great example of those are cheap leads. I mean you, you can get leads for say, let’s just say it’s know where it might pay 50 somewhere else. You might pay like 25 or 20 or 15 even for lead at Home Advisor. Well the problem is that that close rate from prospect to lead, if that’s really, really low, like let’s say 10 percent, well you might be below your cost per acquisition, your acceptable cost per acquisition of a job, just way out of proportion, and it’s gonna not be acceptable at all for your business.

Keith Einix: 12:49

So when you hear somebody say, “Hey, I can get you leads”, they’re not really leads. Leads for 15 bucks? You really got to ask, OK, what do those close in to as far as from a prospect to a lead too, because that’s where the money really is at.

Jesse Stoddard: 13:06

This is so good. This is great stuff. This is another reason we’ve talked about it before, but why people have to track, an owner has to track from beginning to end this entire process with good metrics and measurement because what you see on the surface isn’t always what you get at the other end and unless you know the true math, the customer acquisition costs, so that true cost and then the total customer lifetime value, so you also have to see what that customer turns into and on the back end you upsell them on other things and you have to factor all those numbers in.

Jesse Stoddard: 13:34

Not just, Oh, it’s 25 bucks lead, 50 bucks lead. Well, wait a minute. Like you’re saying let’s. Those are great case to study. Exactly. A really good case studies. Yeah, that’s really good stuff.

Keith Einix: 13:43

Well, and just to bring it back, Jesse, we talk about there’s different levels in your business. There’s three levels that we talk about. One of those levels is going to be the Essentials levels of your business. The next level is going to be the Competitive and the funnel top is Dominant level, and we’ve mentioned this before, but this is really good to go over again in this scenario for application because at an Essentials level, your business that doesn’t have really a marketing system in place and you’re just trying to put that marketing system in place. You’re hiring somebody to do your Marketing Plan, so you have everybody on your team doing the same thing together.

Keith Einix: 14:20

They’re pulling together the same weight and that’s really. That’s really an Essentials, a big rock that you have to get taken care of and carry, but while you’re doing that to get to Competitive level, you really need to understand your cost per acquisition. Your cost per lead, your cost per sale. Because what that does and Competitive level is now that gives you an edge over competitors. So all of a sudden that took you from Essentials in that pool of people who don’t know those kinds of things. That just puts you down the pool of Competitive because those guys don’t know that and now you’re going across all the marketing mediums and you’re optimizing those to your benefit because you know exactly what’s acceptable for your business. When you can do that, that’s where you just start dominating because those guys who don’t do it or have no clue how you are absolutely dominating the space because, if they go try to do Google Adwords, they’re bidding on the wrong keywords.

Keith Einix: 15:15

They have too high of a cost for acquisition, their close rates aren’t good, they don’t have that stuff dialed in and so they just end up wasting a ton of money. Whereas you’ve got dialed in so you know, your acquisition and your prospect to lead close rate and all that. And so you can just dominate that space. In fact, google rewards you for this, it’s called quality score. So when you have better quality scores because you have better close rates and click-through rates on your ads and into leads and such, they give you higher quality scores and they’ll actually reduce your cost per click. Like 50 percent, that’s a huge saving, huge savings into profit, huge savings that turns into profit and makes me more competitive. So really, really important to understand this type of stuff and there’s a lot of reward systems in place to allow you to dominate your market.

.Jesse Stoddard: 16:02

So we’ll wrap up here in a second. I’ll bring up one other concept and hear what you have to say about it, but the question then becomes how do you choose which one of these lead providers, people selling you leads to go with or which one’s a scam or which ones should you avoid? And my quick answer on it, right is it’s just like hiring a salesperson, OK? Because if you’re, if you ran an ad for salespeople, Craigslist, whatever,, right? And you’ve got all these people, they look really good on the resume and then you meet them and talk to them on the phone and they may sound really good and you do have to make some decision based on that. But then at the end of the day, you don’t really know until you hire them and see how they produce. And so a lot of times I’ll get a business owner sends me an email, should I sign up for this one?

Jesse Stoddard: 16:47

And I go there. They don’t like this answer, but the answer is it depends and you actually have to try it. If you can try it without a long-term obligation and you can get in there and simply test those leads and see how they perform, then, you know, and sadly won’t know without doing that. The only comment I would add to this, it’s more of a philosophical thing is, like you said in the beginning, you may not have a lot of other choices, but as soon as you possibly can, you want to create your own, your own marketing machine and your own advertising. And your own landing pages and web pages that attract people to become leads because the more money you give those lead providers, the more powerful they become. And it becomes like a drug that you’re addicted to because then they get more, they get better at giving you leads, you get lazier and less able to make your own leads and then you’re stuck with always giving them money.

Jesse Stoddard: 17:36

And that’s how a business like Home Advisor grows really big, really fast, good for them, more power to them, nothing against them. But as a small business owner, yes you can play the game, but be careful. You may be playing with snakes depending and ultimately long-term, you really want to generate your own leads as much as you can see we’re independent, which is where you know, you’re talking about that Google Pay-Per-Click and that’s how you do that. You generate your own, right? So any last thoughts on this?

Keith Einix: 17:59

Well, just knowing math and as far as your acceptable prospect to lead rate when you are talking to these guys, they don’t know anything about that. And so that’s on you as a business owner to know that kind of stuff about your business and they’re going to sell your positions in Home Advisor, they’re going to sell you positions on Yelp.

Keith Einix: 18:20

But, if it fails, guys, it’s on you because these things do work, but if you don’t know your business, if you don’t have a Marketing Plan, if you don’t know your math, these young people who know nothing about marketing, who are just told to go call a list, they don’t know how to, how your business works, or they’re just going down the list of things that they need to tell you to try to close you. But these are platforms that can work if you line them up correctly. If you know your math, you can do really well on these. So yeah. Perfect. Well, thanks for joining us for another episode. We will see you guys next time.

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