How expensive is lead generation? Stop beavering around.

I recently met up with an agency head.  We’d met before, when he was looking for help with lead generation. Alas we didn’t win his business then.  All water under the bridge.

However, he did tell me what had happened with his lead generating over 3 years. And I doubt his story is that unusual, here it is.

He’d met a new business agency full of promises and they worked together for a year.  He got on well with them and they worked hard, they generated over 24 meetings and two pitches but no business wins – total cost in excess of £30k.

They got tempted by another lead generating agency similar to the one before, making cold calls and doing e-mail marketing etc.  Same thing give or take – £30k cost.

One more try, for another year, with a lead generation agency – that would also help with the agency’s positioning first then do the lead generating –  and the cost would be higher.  In fact they got less meetings and one pitch the cost was £36K p/a.

That’s over £96k in just fees, not to mention the true cost of going on all the meetings and dealing with the pitches and the briefs that came their way too. Add that on and we’d be embarrassed, wouldn’t we?

Lets do it anyway –  70 or so meetings that cost 500 pounds each in time, say 3 pitches that cost – I don’t know – say £20k in time each.  What’s that another £35k + £60K  = £95K and that is being kind no second meetings even added in – That’s a combined cost of £191k – how much revenues does an agency need to make that profit – 3 times i.e. £570K at 33% gp?

The truth was that most of their work, about 80%, came from referrals because they did great work and yet they had no practical system in place to get more referrals. And clients buy from a referred supplier more often than from any other source.  It is the most commonly used heuristic to judge an agency by a buyer – ‘do I know someone who already trusts them.’ It makes life so much easier.

A referral is the ‘Money Ball’ stat of new business, it is what I call here ‘column thinking’. We all sort of know that referrals work best but rarely qualify leads by it.  If you are referred your chance of winning the business sky-rocket. You can even be a lousy salesman and still win referrals. Even a broken clock is right twice a day.

Let that story be a lesson to all of us.  Lead generating is a very risky business and often, in fact more often that not, leads to an increase in the agency’s cost of sale rather than revenues. And can be destabilising across all departments too as planners and creatives get sucked into the processes generated by the cold leads – be it attending meetings, writing creds etc.

Agencies need to sell the way buyers buy and in the majority of cases that is from a strong referrals. Most lead generating from cold introductions just lead you up the garden path.  It is so tempting to put the rose-tinted glasses on – but before you know it you are on a wild goose chase. Go on enough cold meetings and you’re down over £190K.  Agencies spend too much time as free consultants working in columns C and D – otherwise known as canon folder.

Be careful being a busy beaver and throwing good money after bad.  It’s not the sales method it’s the buyer’s system – but you may have already guessed that by now.

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