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Why You Should Think Twice About Pay Per Lead with an Inbound Agency

Why You Should Think Twice About Pay Per Lead with an Inbound Agency Blog Feature

Tom DiScipio

Director of Client Success, Partner, Speaker, 8+ Years Sales & Client Success Expertise

July 19th, 2018 min read

As many of you know, partnering with an inbound marketing agency is a big deal.

It requires you to self-educate, research multiple agencies (or other options), gain internal buy-in, plan to invest lots of money, sign contracts, and ramp up.

At IMPACT, on the front lines of those “partnering with an agency” conversations are our Client Success Managers (CSMs), who help you find answers to the tough questions and navigate the sometimes complex journey.

When the journey enters the “plan to invest lots of money” stage, our CSMs (or any person in a sales role) will tell you, conversations aren’t always easy.

It’s not only because talking about money is weird and uncomfortable on its own… it’s also because in your research, past life, or through a peer who’s worked with an agency before, you’ve gotten ideas of the different ways you can potentially pay for and engage with an agency to get the best deal.

Then, when your engagement expectations don’t align with the agency’s, it can make for a tough conversation.

Common Types of Agency Engagement

The different ways of paying for an agency relationship might include:

  • Paying on an hourly basis
  • Paying by the project
  • Paying a monthly retainer
  • Paying per lead

In the inbound marketing space, the first three options listed above are commonplace. It’s that last one (pay per lead) that isn’t, and we’re going to explore why that is in this article.

Some of you might be thinking, “Can’t I maximize my budget with an inbound marketing agency by ONLY having to pay them when they generate good leads for us? That dramatically reduces the risk for us, right?”

The question we then have to help you answer is: Does it make sense for you OR the agency to engage on a pay per lead basis, and, is that really a good idea?

I’ve asked a few folks from IMPACT to share their insights on this topic, but before we dive in, let’s learn a little bit more about the pay per lead model.

What is the Pay Per Lead Model?

Pay per lead is defined by Marketingterms.com as an online advertising payment model in which payment is based solely on qualifying leads.

In other words, in most cases, there is no fee for the service until a “qualified” lead is delivered to your CRM or inbox.

Here’s a quick example: Wells Fargo hosts an ad on a website like CreditKarma.com.

Once a person signs up for CreditKarma.com to get their free credit score, they’ll log in to their dashboard and see recommendations for any number of credit cards as it relates to their credit score and spending habits.

Once the user clicks on the “Apply Now” button and actually applies for the card, the user becomes a lead for Wells Fargo and pays CreditKarma.com accordingly.

pay-per-lead-example 

Where is the Pay Per Lead Model Typically Used?

Keeping the above definition in mind, it’s clear that the pay per lead model is most often used in the broad world of online advertising.

Perion helps us unpack “online advertising” a bit more into the following eight categories:

  1. Display Ads
  2. Search Engine Marketing / Advertising
  3. Social Media
  4. Native Advertising
  5. Pay-per-click (PPC)
  6. Remarketing / Retargeting
  7. Affiliate Marketing (shown in the Wells Fargo / CreditKarma.com example above)
  8. Video Ads

If you take a quick read through Perion’s article to learn more about each type, you’ll notice a common trend across all of them: They’re transactional in nature and have shown to work very well with businesses that have a transactional, no-cost or low-cost offering that can be had instantaneously, i.e. signing up for a credit card, hopping into a free trial of software, or purchasing a widget.

On the other hand, if your business sells a non-transactional product or service of a high-cost or complexity that typically requires a vast amount research, a longer sales process, and committee buy-in, then it’s clear that the majority of “web users” that decide to click an ad or affiliate link may not turn out to be high-quality, well-educated leads.

Because of this, a pay per lead approach for the non-transactional business means you’re not only paying top dollar for poor-fit leads, but you’re also paying your sales people to spend time with prospects that likely won’t buy.

I mention the distinction above to frame the rest of this article around the fact that the way you determine how to engage with an agency (pay by project, retainer, pay per lead, etc.) should be driven by the product or service of that business.

What Does a Pay Per Lead Model Involve?

Let’s first understand the potential considerations for engaging an inbound marketing agency on a pay per lead framework:

  • It requires the agency to put more skin in the game
  • It reduces your risk and upfront investment
  • It may reduce having to gain the level of internal buy-in necessary to sign a high-dollar contract
  • It requires the agency to stay focused on one thing, and one thing only: more leads

Prior to writing this article, I prompted several members of our team who draw from many conversations with prospects asking if IMPACT can work on a pay per lead model.

Below are their summarized responses outlining why, despite the potential reasons to engage on a pay per lead basis, it may not actually be the best move to work on those terms, and what the implications are for both you and the agency.

Why Shouldn’t You Use a Pay By Lead Model with an Agency?

One of our client success managers, Nick Salvatoriello  centered his responses around two main points on why it’s best to engage with an inbound marketing agency on a project or retainer basis.

1. “An agency HAS to provide value beyond just delivering leads.”

Working with an agency is a partnership, and as such, it means you’re relying on us to do more than generate the lead and ship it over.

“We help bring alignment. We bring clarity. We transfer knowledge, processes, code etc. This is stuff that will impact your company in ways far beyond the qualified lead stage and for far longer than we're on retainer. Look at one of our content strategist’s former companies that is STILL seeing massive traffic increases from content he developed for them over two years ago...”

In other words, it means we’re backing you up on hard conversations around metrics with your boss, we’re helping align key members of your team on a weekly basis, train you to do what we do, set goals, putting systems and collateral in place to help you long-term, and much more.

Buying an expert team instead of just a “lead funnel” comes with an ongoing cost - but the return is an agency partner that has your back and executes as an extension of your own team.

2. “An agency should be allowed the bandwidth to help you qualify and close leads.”

In a pay per lead scenario, once the leads are thrown over the fence to your company, it’s completely on your sales team to make sure those leads close.

We’ve found that most sales teams , however, are not always well-equipped to handle conversations with inbound leads.

Many sales organizations rely on the same, old playbooks used to close other types of leads, and are actually detrimental to a conversation with an inbound prospect.

By engaging with an agency on more than just the delivery of the lead, you open the opportunity for them to enable your sales team to better sell to inbound leads through the optimization of your sales process, the creation of enablement materials, coaching for sales team members, and implementation of better sales tools.

What Pay Per Lead Says About An Agency

Next, I talked with another of our CSMs, Marc Amigone.

He shared a few key insights on what it may say about an inbound agency if they agree to work on a pay per lead model versus a partnership or retainer.

“If an inbound agency were to work solely on a “commission” or pay per lead basis, they’d have to charge WAY more per lead since they’re carrying so much of the risk.

Essentially, if your objective is to lower your cost per lead (which is a very common objective for most marketing and sales organizations), a commission structure on generating inbound leads may cost the same if not more then fully partnering with the agency, not to mention losing out on the benefits of that agency partnership beyond lead generation.”

Marc then goes on to draw an analogy between a services organization that agrees to take on ALL the risk of a partnership versus a mutual partnership where risk and costs are shared:

“Someone told me once... if you can walk into a tattoo parlor and get a tattoo on the spot, it’s probably not the best move to allow that person to make a permanent mark on your body.

By the same token, if an agency is willing to take on that kind of agreement right away, it will be important for you to truly vet their track record of success and confirm that it’s not a play for them to just gain your business.”

Marc then suggests that it begs the question from the prospect, “if an agency is good enough to produce leads for their clients, why do they not REQUIRE clients to be on a retainer? Do they HAVE to take on this kind of deal to gain new business?”

Marc finished his thoughts by sharing, “Inbound marketing or marketing in general isn’t a formulaic process…  It takes experimentation - learning over time to refine a process. It goes back to what we believe should be a core piece of any marketing process - testing.”

The Positives of Pay Per Lead

Last, but not least, I spoke to IMPACT Facebook Strategist, Ali Parmelee.

Ali has extensive experience helping retail clients develop their eCommerce websites and advertise on Facebook.

As it’s most prevalent in the space she’s lived in for so long, she shares a different perspective than Nick or Marc on the pay per lead or pay for performance models.

“Performance-based is a big thing in the Facebook advertising space. It is, however, more of a hook because VERY rarely are the opportunities that come through ever appropriate for it. In my realm, you have to have a “validated funnel” which means you have to have your ad funnels ALREADY performing.

We just take it and make it run better. The analogy is that there’s already a bus with some people on it…we fill it up.”

Reinforcing Nick’s point earlier, Ali shared, “If not clarified absolutely perfectly VERY early on, working on a pay for performance basis creates a grey area where leads are generated by the agency for the client, but the client doesn’t follow up in time or attempts to undercut the fact that they are quality leads. This obviously has the potential to ruin what would otherwise be a perfect agency / client relationship.”

Key Takeaway

After speaking to my colleagues, with perspectives on both ends of the spectrum, it’s clear that, like everything in inbound marketing, you need to carefully analyze your organization’s long-term goals and needs before inquiring about a pay by lead model from an inbound marketing agency.

For many of the businesses that find inbound success are just inherently unfit for pay by lead, but there are exceptions to every rule and if you’re in eCommerce or more transaction-focused, there may be a case to be made.

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