Validation Sense and Validation Cents: Part 2, Mix Logic

The reality of leads in today’s environment is that of a marketer making the right ‘mix.’  We’ll keep it straight, and show you how this reality came about.  I’m going to lean on the automotive business for now because that’s simply where we’ve been, but we’ve touched a number of other markets, and seen how things work there as well.  Not much is different.  At the end of the day, leads are commodities with conversion rates and prices.

Lead Types

A lead mix will have different composition of all kinds of data, and the market prices for all of these significantly differ.  We’re going to start building some assumptions:

    • Heavy Intent
      • Straight organic SEO ($30+/lead)
      • Display driven ($15+/lead)
      • Email ($15+/lead)
      • Mail ($30+/lead with limited information provided)
    • Moderate Intent
      • Affiliate ($8-10)
      • Resold, shortly aged leads ($4-8)
      • Call center leads ($8-15)
      • ‘Opt in leads’ ($5-15)
      • ‘Network’ leads ($3-15)
    • Phonebook level Intent
      • Co-reg leads ($0.50)
      • ‘Ancient’ or heavily aged leads ($0.02-$0.25)
      • Data from other markets ($0.10-.50)

The price of generation is heavily tied to how much action has to be taken by the customer, and how thoroughly incentivized they are in going through the path.  The more sticks, and fewer carrots, with more natural inclination to look for that car they’re buying, and the more the price goes up.  Any SEO work is further pushed by the competitive nature of the business.  All of the big generators in these businesses who do SEO work will spend as much on the key words as they can to crowd out other who are looking to get in.  That SEO price is high, and will not come down in the foreseeable future.

Where the market ends up is that the generator’s selling price, and the buyer’s price have to hit one another.  Additionally, the seller and the buyer are both playing the game of attempting to hit the highest potential margin.  And so the game begins.

To simplify it a bit, let’s say there are three kinds of leads: $30, $9, and $1.  High, medium, and phonebook.

Reality: Lead Generators Mix

The generators do it by taking high quality leads, and closing their eyes and buying moderate quality leads that end up having phone book and some better stuff mixed in.  The second they use outside suppliers, they are getting into a much more colorful world.  Even with this, a fair deal between the supplier and the buyer is all that anyone is after, and so finding this middle ground becomes the goal.

Here’s how it happens today:

In reality, most of the dealers have cost per lead, and cost per sale (CPS) expectations.  Assume a dealer wants to only pay $25 per lead, and expects to convert one in twenty for a $500 CPS.  This way, his sales people aren’t working the leads too hard to get a sale, and he’s hitting what he thinks is the right advertising cost per sale.

On the other side, the generator who knows this now knows the figure he has to hit.  Each kind of lead has a sales conversion ratio (and effective price).  High quality leads convert in the first 30 days at about 15% when the dealer practices are of high quality.  The high cost SEO leads have a cost of around $30, and because of the dealer’s reluctance to pay that much for an individual lead, they will have a tough time selling that and making any money.  Getting a dealer to swallow $40 just doesn’t happen every day (even if the leads are pristine, and the conversion figures would be excellent!).  To further push the generators away from providing these leads, the market for true organic leads is very, very thin.  In the end, if you want to provide greater volume, and make the endeavor decently profitable, you have to dilute that stock of organic leads.  If the generator wants to make money, they have to mix, and that’s where things really begin.

Moderate quality leads provide intent down around a 5-7.5% potential close rate.  This is 13-20 leads on the list to a sale.  Now we’re getting close to the dealers ‘passable’ lead supply.  The issues here are that these leads are sold multiple times.  Sometimes resold to the same guys that already bought them (often from one of their other suppliers).  All of a sudden, you’re talking a significant reputational risk, and an actual sale becomes more difficult.  These leads aren’t perfect either, even though they fit right into the model.

The other reality is that 1 in 4 Americans buy a car in any given year.  Now, we’re talking about that phonebook again.  Given a 30 day rolling window, there’s basically a 1 in 48 chance of someone being in the market, or 2% of raw contact data in optimal conditions.  Factor in tastes, and people’s reluctance to be hawked a car over the phone, a decent in market contact may have the convertability of ½% of being driven to a sale off of a cold call (effectively 1/30th of the SEO lead).  Think making 200 calls versus the seven or eight.  Assume the cost of these should be around a nickel or a dime if this is raw contact data.  To get a small amount of intent may cost you up to around a quarter, and these can get you up to a one or two percent close ratio.  The bottom line is: these leads require heavy BDC operations that most dealers don’t want to deal with.

When the mix occurs, you end up with a series of leads that will allow a lead buyer to not so coincidentally allow them to ‘end up’ around their acceptable cost per sale.  Additionally, many of the leads supplied end up being of the second or third kind.  Knowing that contact rates are going to be limited, the buyers end up holding the bag, and nobody accomplishes perfect returns.  The rest is the magic word of marketing: breakage.

Data Has a Signature

That’s where reality comes back in.  Everyone is selling, and the buyers basically get to pick up the bill.  At a point, so much indexing occurs in the leads business (and its close allies), that allows us to put together a fingerprint for what people are doing.  Validation services become a new part of the lead cycle, and are no longer going to simply be sold to large lead aggregators so that they can sell data.  Now, we’re going to see validation services for buyers of all sizes, as they work to weed through their traffic, and improve their bottom line.  ‘The Mix’ will always be a staple of the industry, but with greater abilities to determine where that lead actually lies, we will see more market-based pricing, owing to the fact that the lead ‘commodities’ are of different grades.  In the final article in this series, we’ll move on to cover validation, and how it’s reforming the bottom line of the industry.

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