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The Cost per Lead transaction model: greater margins, wider coverage?

Geplaatst door Louise Verschuren op Dec 4, 2017 3:35:06 PM

Following my previous post concerning CPS, I will now take the time to examine cost per lead transactions. During my many conversations with advertisers, I often notice that when it comes to performance-based marketing they prefer to pay according to actual transactions. However, I am convinced that by using smart lead campaigns the results, and in particular the margins per sale for advertisers, will be better.

After all, on payment based upon sales you will diminish your profit margin with each sale. Time after time. And in the case of qualitatively lower sales, rapid unsubscribers, or double counts any existing margins can be completely wiped out. On the other hand, a lead campaign means you will invest in the creation and expansion of a database of interested consumers. You will not only tempt them to undertake a transaction during a campaign, but can also reap the rewards of conversion through any follow-up actions. This means that the lifetime value of a lead can continue to accumulate. The initial investment for a lead campaign may be higher than the costs involved in setting up a CPS campaign, but the effective cost per order will shrink with each contact moment.

Sample calculation
Imagine that for a telecom company a new annual subscription can cost anywhere up to €100. For a CPS campaign, this is the amount that affiliates receive for each subscription they source, regardless of whether these subscriptions survive the credit check, whether call behaviour is valuable, of whether the subscriber changes supplier after a single year’s subscription; the list of variables goes on. For 100 new subscriptions, the cost to the advertiser is € 10,000 euro.

With a lead campaign, the same advertiser collects 5,000 leads at € 1.50 per lead. In addition to receiving an email address for each lead, he also has more personal information, knows who the lead’s current provider is, knows which device type is preferred and might even know the call behaviour of each lead. During the recruitment campaign, the potential subscriber will also receive an immediate, tailored offer. Experience shows that 1% conversion is often possible in such cases. So we can surmise that the first 50 sales are guaranteed. Throughout the year, the advertiser can track these leads with appropriate email shots based on known data. Those leads who are bound to a contract for the next six months will only receive a promotional offer once they are nearing the end of the contract, or are contract-free. Conversion rates in this scenario can vary between 1 - 5%. Even based upon the worst case scenario of 1%, or 50 additional sales, this business case is still more favourable than CPS campaigns. You have now closed the deal on 100 sales at total cost of € 7,500. The effective cost per order is €75, and this sum will be reduced for every new sale accomplished within that lead pool.

Test, test and test again
There are many ways to collect leads and, like any performance-based campaign, testing these leads is incredibly important because you don’t get a 1% conversion rate by doing nothing. It is quite easy and relatively cheap to build a 100,000 email-based database by co-registering in a campaign together with 10 other sponsors. You will be given a lot of consumer coverage, but the big question is what this is worth. The consumer will often not remember which groups he/she has given permissions to, and the probability of an unsubscribe during the first follow-up moment is considerably high.

With a personalised branded campaign which includes an appropriate message, quiz, game and/or incentive, this risk is more limited. All communication is done in your personal corporate style and in line with the follow-up communication, which increases recognisability and lowers the risk of the dreaded unsubscribe. But take care to arrange a timely follow-up, and do not allow leads to go ‘cold’ because you have failed to contact them for three months. This might seem obvious, but in practice this happens all too often.

Not only the type of recruitment campaign, but also its coverage is worth testing. Which group provides the best converting leads? Monitor this data constantly and act upon the information you collect. It is a known fact that when participants are rewarded for data entry this is positively reflected in the conversion rate.

And of course, there are the various A/B or multivariate tests for email delivery, incentive to win, promotion, etc. A campaign should not just be optimized for the benefit of the advertiser, the publisher should also not be forgotten. The risk to the publisher is a little lower with a CPS campaign than with a CPL campaign, but this is also based upon results. The agreed coverage must provide sufficient leads to subsequently generate revenue for publishers to expand upon.

Latent prospects
Finally, the difference in the customer’s decision-making phase when participating in a CPL or CPS campaign is an important factor to take into consideration. In a sales campaign, it is likely that you will attract consumers who already have an active need for a transaction. Recipients who are not excited by the product will not turn into clicks. To use the telecom provider example: only people actively looking for a new subscription will click.

With a good lead campaign, the percentage of recipients that click is a lot higher.

People with latent needs can be targeted. There is no immediate incentive to a purchase, so people who are still under contract or who are currently satisfied with their current device/carrier can still participate in the campaign. In the lead campaign, your role as advertiser means you then have a lot of time to highlight your branding message, while any follow-up contact offers the opportunity to deepen your relationship with the lead. When the consumer is ready to make a purchase, your brand will be the first that comes to mind.

In short: there is sufficient evidence to suggest you should invest your marketing budget in performance-based marketing on lead campaigns. Or have you come to your own conclusions?