Something I don’t see talked about very often is how much a company should pay per lead. If you are a well-funded startup, you can afford to lose some money per acquisition as you figure out the best model that works for you, but if you’re bootstrapped, you don’t have that luxury.
If you’re in the latter category, this post is for you.
To start, let’s assume that you sell custom-designed logos online with a website that gets 10,000 visitors a month.
For the sake of simplicity, let’s say your customer lifetime value is $1,000.
Then let’s say you convert 1% of your 10,000 visitors into e-mail subscribers per month. That’s 100 e-mail leads.
Then let’s say of those 100 e-mail leads, 15% are qualified. So 15 qualified leads.
Of the 15 qualified leads, maybe you’ll close 20% of them. That means you’ll close 3 per month.
Here’s how much you can pay per e-mail subscriber:
$1,000 x 1% x 15% x 20% = $.30
Each of your e-mails is worth $.30. Ideally you would give yourself some margin and aim to pay $.05 to $.10 per e-mail lead.
David Skok recommends keeping customer acquisition cost (CAC) at least 3x less than customer lifetime value (CLTV):
Not too sure about your numbers? Add some more margin by making your CAC 6x to account for additional variables.
This is why it’s important to continue to look at your funnel metrics the whole way and figure out what you can optimize because every percentage point matters.
Now you’re probably wondering, how in the world can I get e-mail leads for $.05 to $.10? Great question.
While it’s very tough to get leads in that range in today’s world, it’s still possible to get close by running contests or even renting e-mail lists. And yes, renting e-mail lists still works (depending on the niche that you’re in).
Like anything else in marketing, your offer has to be compelling and your targeting has to be precise.
But that’s the hard way.
The easier way would be to optimize what you currently already have instead of trying to bang your head against the wall on something foreign. Most startups suck at optimizing what is already working and instead try to add additional custom acquisition channels without first 10x/100xing what they have.
Let’s organize the funnel metrics again (based on what we described above):
First, we’ll see if we can do some conversion rate optimization on the site and in our e-mail sequence:
Just by making a few quick changes in our funnel, we’ve increased our worth of an e-mail by 4x and as a result, we can now pay 4x more per e-mail. That’s A LOT more manageable.
But ‘manageable’ isn’t good enough. We want more.
Price is something to generally revisit because you’re constantly improving your product/service. It makes sense to think about increasing your pricing every quarter due to increased demand, overhead, and other variables.
Let’s continue to build off our previous example of conversion rate optimization success. This time, we’ll be doubling our prices because business is great and we feel that we were undercharging in the past:
We have even more wiggle room now that we have adjusted CLTV. If we can just make other minor tweaks to get our conversion rates higher and perhaps bump the price up a little more, we’ll be able to get more aggressive with our advertising initiatives.
Read more: The Ultimate Recipe for Effective Customer Lead Generation
It’s VERY important to know your conversion numbers at each step of the funnel. When you have these numbers buttoned up, all you need to do is tweak and test each step of the funnel until you have a well-oiled machine. Using an Excel Spreadsheet or Google Spreadsheet will suffice for tracking, but be sure to track your numbers on a daily basis.
From there, it all becomes a simple game of driving the numbers to a satisfactory level at each stage of the funnel and then pouring gasoline onto the fire.
What are some smart ways you know of to increase numbers in your funnel? Let us know in the comments below!
Hey everyone, today’s interview is with Clay Collins, co-founder and CEO of LeadPages, the world’s easiest landing page generator.
LeadPages is a lead generation platform which does a lot more than just landing pages, like allowing you to collect leads through forms, automation links, and SMS text messages, so you can build your email list through a variety of methods.
I’m a big fan of LeadPages and have been using it for a couple of years because it’s just a great tool. In this interview, Clay and I talk about why it’s critical to use landing pages wherever you’re creating content, lead generation at “branding” events, and how content upgrades can increase conversion rates enormously.
Psychology and Data Go Hand in Hand
Clay Collins comes from a science and psychology background and started LeadPages around the same time that he dropped out of a PhD program in developmental neuropsychology. He sees a lot of what they’re doing behind the scenes, data-wise, through a psychological lens. Using psychology of human behavior to better figure out how to get potential customers to opt in? Genius.
LeadPages Is Head and Shoulders Above the Competition
LeadPages launched in January 2013 and now in October 2015 they have just over 38,000 paying customers—and for good reason.
This platform is, quite simply, the easiest and fastest solution to generate leads that convert, and comes with a number of highly-converting pre-generated templates that you can actually sort by conversion rates. For example, you can scroll through all the Webinar registration templates in the system and then arrange them by average conversion rate.
So even if you don’t have the traffic or the time to run split tests on your own business, you can ensure that you are at least starting out with a baseline landing page template that is going to convert well for you.
In the old days, you would have to go to a designer first and pay anywhere from a couple hundred to a couple thousand dollars, then you’d have to get it coded, then there’s revisions and so on—a very daunting process for anyone, never mind young entrepreneurs.
With LeadPages you throw a page up in 5-10 minutes, see how it converts, and there’s your proof of concept for the business. It’s really convenient, easy, and inexpensive, especially for a new business that doesn’t have a lot of cash to burn. It’s also a great tool for other businesses when you want to give away an e-book or other content upgrade.
How Startups Can Use LeadPages Most Effectively
The most important thing to remember is: whenever you publish content, you should be using it as a landing page that can be used to generate leads. Every single blog post should come with a customized lead magnet that people can download at the end. It’s crucial to capitalize on every opportunity available—podcasts, live talks, every blog post, home page, demo page—to generate leads for your business and get people to the top of your funnel.
For example, Clay was at speaking at ICON (Infusionsoft’s annual user conference), and while he was up on stage, he allowed people to download the slide deck by simply texting “ICON” to 33444, which they did. He wound up collecting a whopping 350 leads in that moment—and from a room of 500 people, that’s a 70% conversion rate!
Most people wouldn’t have done any lead generation at a “branding” event, but Clay was using it for direct sales marketing purposes. He does the same thing with his podcasts. So it’s not just about online opportunities, but those often underused offline opportunities as well.
What Is a Content Upgrade?
“Content Upgrade” is a term that LeadPages coined and refers to the upgrading of your content experience. So if someone is reading your blog post, you might offer a downloadable checklist that helps them execute what they learned in the post. For a podcast, you can offer the transcript or show notes. If you’re publishing a video, a content upgrade might be an audio version. You should always be thinking of a simple and easy content upgrade with which you can provide your audience.
Content Upgrades and Conversion Rates
The conversion rate for most blogs at the global level is about 0.5-2%. This indicates how many people who visit any given post will subscribe to the blog or blog’s newsletter. By comparison, content upgrades often perform anywhere from 30-75% in terms of the opt-in rate.
For instance, say someone is interested in post-pregnancy exercise and finds a blog with that content. The likelihood that she will immediately subscribe to the blog’s newsletter is pretty low, but the likelihood that she’ll download an illustrated PDF (i.e. content upgrade) outlining the exercises that were written about in the blog post is much greater.
Think of it this way: if you’ve spent all that time creating excellent content, just spend a little more time and you can see your conversion rates skyrocket.
Content Upgrades Are An Ongoing and Group Process
At LeadPages everyone who touches content is responsible for the upgrade, as opposed to there being just one content upgrade person. They have a full-time person taking care of their YouTube channel to produce videos—so every time he makes a video he makes sure to include an opt-in opportunity. Same with the podcast creator—every time he publishes an episode of Conversion Cast, he ensures that there’s an opt-in opportunity. Same with the blog writers. It’s not an after-the-fact job; it’s an ongoing process. Who better to create the content upgrade than the very person who created the original content?
What To Test For Conversion Tests
LeadPages runs a lot of different conversion tests all the time. They’ve tested animated video on landing pages, where the background of the page is an animated video (rather than a normal, embedded video on the page). They’ve seen both positive and negative results based on what the background video is. They’ve tested putting the pricing info on the front page along with a direct link to purchase, and have seen it work out well sometimes and other times not. They’ve played around with removing headers and navigation, and have seen some instances where it’s improved and other instances where it hasn’t.
The point is, test everything! The problem with most people is that they tend to split test the smaller things rather than bigger things. The typical split testing that most businesses do is to play around with button color—which is not the most effective use of your time. Generally, the best things to test are headlines and copy, rather than layout.
The Reverse Squeeze
This is where you provide a lot of value up front, like giving away an entire course. At LeadPages, they’ve played around with different lead capture pages for giving away courses and free content. They have an in-house marketing team member who creates large courses for which other businesses might charge $200-400. They have a Facebook Advertising course, an Affiliate Marketing course, an SEO course, etc., and they usually contain 8-12 videos, along with mind maps, worksheets, audio downloads, transcripts, etc.
They’ve played around with providing the bulk of the content either pre opt-in (where people have to opt in just to see the course material) or post opt-in (where people can download the videos themselves after they opt in)—and this second option is their highest converting type of landing page.
In other words, you demonstrate an insane amount of value up front and then what’s going on psychologically is that people see this value being provided for free—which garners trust, but it also creates tension in the mind of the viewer. On one hand they see all this value, but on the other hand they know that they can’t consume it all while viewing the page. So what they end up doing is opting in so that they can download everything on to their hard drive to consume later. In other words, to relieve the tension, they opt in.
That kind of experiment has worked incredibly well for LeadPages—anywhere from 8-10 times the increases in opt-in rates when they deliver that amount of value on the landing page, and they typically see a 60% conversion rate.
A One-to-Many Direct Sales Marketing System
When LeadPages first started, Clay looked at how other companies in their space, like Hubspot, Marketo, and Infusionsoft, had created growth—and they were all growing by scaling their sales teams. Hubspot recently released their S1 filing which shows that they were paying $11,000 to acquire a customer. That wasn’t going to be possible for them, so Clay tried to develop a one-to-many direct sales marketing system that allowed them to grow really fast without initially building a sales team.
When you have a customer acquisition cost that’s in excess of $10,000, you wind up with a situation where it takes over a year of someone being a customer on your platform to pay back the amount that it cost to acquire them. For example, a company like Zendesk has a 2 ½ year payback period—in other words, a customer needs to be on Zendesk for 2 ½ years before they can break even on that customer. This means that the faster they grow, the more in debt they have to be.
This wasn’t feasible for LeadPages, and Clay ended up scaling their content team to do one-to-many sales as opposed to descaling their sales team. So he started off making videos of the product himself. Eventually he had to hire someone to make the videos and write the blog posts. They were tracking metrics and it turned out that their videographer and blogger were generating more per year in sales than the average sales person at SalesForce. They were hiring content experts rather than salespeople.
And Then Came the Sales Team
Clay believes that the gravitational pull of any software for business is to become more enterprise over time. They started off with software that was pretty basic and created for solopreneurs, then customers started asking for spit testing, then phone support, then sub-accounts, then HubSpot integration, etc. So they added those features.
And at some point the amount of missed opportunities was too great because they didn’t have an enterprise sales team who could demonstrate the software or fly out to see customers if the deal was big enough. It wasn’t the best use of their time, so that’s when they started building their sales team—in response to demand from prospective customers.
The Struggles that LeadPages Faced
Like any business, there have been a number of struggles over the years. Three years ago LeadPages consisted of 3 people with no customers and they hadn’t raised any venture capital, and now they’re at 150 people with 38,000 customers and have raised $38 million in venture capital. Scaling is difficult, but all the big challenges come down to people: if you have an amazing culture and you’re proactively doing the right things and have hired the right people, most tech problems can be solved. People are the most important aspect of business and can help you get through any struggle.
When you’re growing as fast as LeadPages has, you can end up in a situation where the average person in your company has been there for 2 months, reporting to someone who’s been there 6 months. That can be a problem because there just isn’t a lot of institutional knowledge. Everyone’s facing a problem for the first time and there’s no one to go to for advice.
Clay recalls something that the CEO of Active Campaign once said to him: “We’ve been at this for 10 years and most of the people here have been here for that long, so if we’re dealing with a problem, it’s probably not the first time we’ve faced it, so we can communicate in shorthand. And there’s a lot of tribal and institutional knowledge.” At three years, Clay says they’re starting to be there.
A Piece of Advice For His 22-Year-Old Self
If Clay could give his younger self a piece of advice, it would probably be: drop out of college. He’d also like to tell himself to meditate every day, to start reading a number of influential books early on and, most importantly, to have a lot more fun! Enjoyment is a pretty good means for navigating your way through life. If you’re not insanely happy about what you’re doing, you’re probably not doing the right thing.
Because he learns from journeys and direct experience better than from a synthesized model, Clay recommends autobiographies or biographies of really amazing people, like:
Even though it’s not a business book, Clay thinks that one of the best books for entrepreneurs is the Andre Agassi autobiography, Open—it really breaks down what it takes to be a champion, what it takes to rebound when things aren’t going so well, and the kind of mindset you need to have to respond to different struggles.
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