Buying Leads Sucks

This morning I awoke to a message in my email inbox (click the full image on the left to get an idea of what I’m talking about).

The email is from a company that serves as a lead gathering source for ERP VARS ( and probably software publishers too ). They’re certainly not the only company offering this service but since I happen to be on their email distribution list I’ll use them as an example.

This lead  they’re offering is a person looking to be better trained for future job opportunities. A noble request – but not exactly the type of lead most VARS would be looking for.

Which started me thinking.  Are  “pay leads” something VARS should be chasing? Maybe there was a time in the past that they worked. Are they still a valid marketing tool?

Services like the one that sent the email work by having end users  submit contact information online – usually doing so in exchange for some type of free white paper or other assistance with finding an ERP solution.

These prospects are then matched with one of several consulting firms who’ve paid to receive the names of companies  looking for  help in their area of expertise.

At least that’s how it’s supposed to work.

Disclaimer: Various regions of the country  have different types of lead results. If, for example, you’re in a remote area with no competition then a lead generation service probably works great because you just might be the only VAR chasing that lead.

However if you are in New York City or San Diego then I bet your experiences will be a lot different.

From what I’ve seen the leads fall into one of these overly broad categories:

  1. Consultants looking for free help finding a program for a client (The consultant usually has been paid to conduct a search. You however won’t see a nickle of that. In the unlikely chance you win the bid expect to bill everything through this third party consultant at the same rate you were using in 1986. The consultant invariably doesn’t pay you and second guesses everything despite having zero experience with ERP turns out to be a thorn in your side for the entire engagement),
  2. End users who already have a quote and are looking for second, third, fourth and fifth bids. They’ll always say  they’re looking to close very quickly – and they are – just not with you,
  3. Dreamers with low budgets that don’t cover the cost of a single on-site visit (Tip: If the budget range provided is $500 to $25,000 guess which number the prospect’s thinking of),
  4. People who enjoy filling out online lead request forms and have no authority/budget/motivation to buy. Recognize them when they hang up on you or repeatedly ask “why are you calling?” or “where did you get my name”,
  5. A seemingly never ending pool of companies that will “buy immediately if it can do what we need” , the problem being they don’t know what they need and/or their needs are so hopelessly unique and complex that even $100,000 of the world’s best programming won’t solve a problem that they’ve budgeted $2,500 for. These companies are easily identified because they’re still using the same computer they purchased on August 12, 1981 when the IBM PC was released.

VARS  subscribe to these services (I never have). The amount charged varies depending upon the number of leads the VAR wants to receive.

Is there a return on investment for these services? Certainly. Is it worth the hassle and overhead? I guess if you love chasing  the same lead that’s probably been distributed to multiple competitors. I’ve sometimes heard this described as a “race to the bottom line” . The winner’s often the one with the biggest discount.

Anyone like chasing that type of lead?

Based on informal non-scientific discussions with people who’ve bought leads from various sources it seems most do so because of the “I only need one big sale to make it worthwhile”.

Problem is that these big sales seem elusive yet perpetually just within arms reach.  VARS use paid leads as the lazy man’s way to marketing. It’s a “feel good” marketing because the VAR is “at least doing something” with a side order of “I’m doing it because my competitor is”.

My opinion is chasing these leads are poor uses of time, resources and  marketing money. When you close one of these leads they often produce  disloyal and price sensitive customers that never become profitable long term clients.

When the initial sale is heavily discounted the  way to make money is by keeping the client happy and loyal for several years so you’ll have a chance to earn back the initial discount. This is the cell phone carrier model where the phone is given away but the customer agrees to stay for two years so the company can earn back the phone discount.

My experience is that most  (but not all) clients arriving via lead services won’t stay. So you never have a chance to make back in year two through five all that money you discounted in year one. See the problem?

Cattle call lead generation  sucks as a reliable way of producing loyal profitable clients

Everyone’s familiar with Google Adwords.

It’s the simplest form of advertising and you can get started quickly with almost no effort or planning (which is how 98% of VARS do it).

Create a three line ad that displays when a Google search is performed on your select keyword(s). Set a monthly budget and sit back while your competitors and tire kickers Internet searchers click away at your link and are delivered right to your web doorstep.

Right?

The theory of Adwords is great —  for  businesses that sell commodity type goods  based predominantly on  price.

Accounting ERP software is fortunately not one of those types of businesses. Most ERP software must be sold bundled with some consulting, setup and training time as well as an often lengthy initial discovery process to ensure that the expensive software is a good fit for the business.

Google Adwords for ERP Software in my experience is a crap shoot

What I’ve found is that you quickly blow through $200 (or whatever your monthly budget is) with few leads. I’ve always been suspicious about exactly who was clicking my name. Is it mainly competitors?

I’ve never been a  believer that it’s a great idea for me to invest in a service that essentially provides my company name along with (pick a number — 1, 2,3 or more) competitors to those searching the web.

Am I wrong here in believing that I’d then be chasing the weakest form of client?

Essentially I’d be dealing with predominately companies searching based on price. Then when those companies found ME – they would also have a handy list of several of my competitors.

Anyone enjoy completing an RFP (request for proposal)?

That’s what online leads essentially are. The online lead is the Y2K version of an RFP.

And you know what – RPP’s suck because it’s a crap shoot (sound familiar) where you are at a cattle call (familiar?) with several competitors (ding ding – are bells going off yet?).

Notice that I said predominately because I’m sure there are some companies that will find you online that in turn become valued long term clients.

There are also homeless people who walk into the casino, insert their last quarter and walk out a millionaire.

But not many do. And there’s a reason that Casino’s can afford to give you $5 buffet steak dinners and free drinks. Hint: It’s because the house has the advantage EVERY time.

It’s the same theory with online leads.

The customer or the person selling the lead has the advantage EVERY time.

I’m sure there are companies that spend the money on daily lead reports and who win business from those services.

Average out the cost of chasing the duds from the lead sheets and Google ads. Are you making money after factoring in the cost of obtaining the lead. Assuming that leads found this way are less loyal — leaving after a they buy their bundle of discounted software and services — then you probably aren’t making  recurring revenues from them.

Which is why I question the wisdom of buying these leads in the first place.

And it’s not just the examples that I’ve used. There are plenty of other sites that have been around offering similar services.

I sometimes receive email solicitations to buy their lead updates – which are good for a  laugh.

  • “Nigerian companies looking for software”
  • “Budget range $100 to $20,000” (Two guesses which number the prospects thinking of)
  • “Using Great Plains Dynamics but seeking a General Ledger replacement – not open to switching from GP”
  • “Consultant looking for a client” (My all time favorite because 95% of these are pleas for some free consulting help)
  • “Company located in XXX where physical geography of the consultant is unimportant” (It’s only unimportant until the consultant tries to sell or bill them for anything – then watch how the story changes!)

I see far too many Sage VARS “investing” in marketing programs that they seem to rely on to do all the work for them (listings, paid links) when in fact there’s no better marketing than keeping clients happy.

In my experience  companies searching the web for accounting software and clicking paid links are the weakest form of customer. They’re invariably looking for cheap price and instant gratification. Of the customers that I’ve found this way – I cannot remember a single one that has stayed with me. I can’t remember a single one that bought on anything other than price.

Thankfully I stopped using paid lead sources years and years ago. I’ve found no substitute for good old fashioned hard work.

What do we use instead?

  • A monthly newsletter sent to 2,000+ customers, vars, prospects, CPA firms
  • Timely updated information on ERP software and specifically our specialty – MAS90
  • Referrals from happy customers
  • Prepaid unlimited support that benefits the client by allowing them to know their annual support costs
  • Retaining existing customers – if we’re not constantly churning disloyal customers that we’ve acquired from paid sources then we have more time to nurture (and earn fees from) our existing loyal customer base who return year after year after year.
  • Internet marketing – but only for those who come to us after having been on our newsletter list or read an online article we wrote

What don’t we use?

Tired sales tactics that over-emphasize price and promotions over consulting.

Are we winning sales awards this way?

Hell No!

Are we more profitable than most? That’s hard to say.

Most of our clients return to us year after year for advice and support on their accounting systems (specifically MAS90). We don’t churn clients at a rate that forces us to take on the more expensive lead generation sources. I suggest that focusing more on client service and retention. might be a good goal for 2010.

2 Replies to “Buying Leads Sucks”

  1. Wayne,

    This was a very thought-provoking post, particularly because I specialize in marketing activities for Sage business software VARs. I agree with what you say about FindAccounting although I hear the occasional success some partners have using it. For me, the jury is still out on that lead gen source.

    I still think SEO is the way to go as it allows you to be found when a given prospect is searching for solution providers. Google AdWords, as you so aptly pointed out, is a mixed bag; while it may provide leads it’s head-scratchingly odd how the ad budget has a way of just disappearing without any real leads coming through. At least that’s been my experience with using AdWords to generate leads for ERP systems. Others may have had more luck.

    Putting your newsletter in the hands of as many businesses as possible is another good approach. People rarely look down upon free information, particularly if it’s a value-add and reliable.

    For me, the bottom-line is that a VAR has to spend money to find new business. Exactly how it’s done, where and how much is spent, obviously varies. Whether VARs decide to duke it out with a bunch of other hungry VARs hot on discounting their software is a choice some are willing to make. In the end, we’re all competing for eyeballs and pocketbooks.

    Whether one ends up on the winning end of the sales equation comes down to a complex mix of factors that may include pricing, reputation, software brand, VAR-customer chemistry, the economy, and more.

    So while I’m in agreement with the majority of your post, I still think the jury is out on whether it can be categorically said that buying leads sucks. If it seems to work for some companies, and they have seen an ROI on the marketing investment, who am I to argue them out of it?

    Dave Manzer

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