Why Pay Per Lead is Probably the Right Leads Vendor Arrangement for Your Brand

Between balance of power and sheer economics, Pay Per Lead has a lot going for it. Part 2 in our series on vendor economics.

In our previous post on lead vendor pricing structures, we covered one of the more common – and commonly misunderstood – pricing approaches: Pay Per Success. In that piece, we discussed why Pay Per Success, in which the vendor is only paid for leads they’ve succeeded into parlaying into sales calls, makes sense for certain situations, but is less advantageous for brands in others. (As we noted there, we’re focused on lead warming providers – which we obviously know best – but the logic applies to purchasing clicks, leads, calls, or salesperson services too.)

To recap that piece:

• Generally speaking, Pay Per Success incentivizes vendors to focus on delivering a volume of connections, not on quality lead warming. It also forces vendors to drop work on the hardest-to-handle leads that garner fewer successes, in favor of the simpler-to-connect ones that yield more success payouts. The brand must find another solution to take on those difficult leads—assuming the brand is made aware that the hard leads are going untended.
• Pay Per Success can pose hidden costs. On paper, vendors charge for successful leads only. In practice, vendors bake the price of failed leads into the price of successful ones.
• On the other hand, Pay Per Success can be an easier internal sell within an organization. Because Pay Per Success appears to shift all risks to the vendor, the arrangement tends to face much less opposition from risk-averse Management, Finance, or Procurement teams. Because that’s so, the Pay Per Success model can make good sense when the leads are easy to close and the brand has a conservative procurement culture.
• For businesses with more complex leads to close and a more sophisticated culture around procurement, Pay Per Lead is typically the better option.

In this piece we’ll dive into the last point about Pay Per Lead. We’ll explain what Pay Per Lead is, and what its advantages are over Pay Per Success.

Definitions: What’s Pay Per Lead?

In Pay Per Lead pricing, the brand pays a flat rate for every lead the vendor handles, regardless of whether that lead turns into a warm conversation or not. So, for instance, if the arrangement gives the vendor $3 per data record (lead), the vendor will get $3 on every data record it converts into a call and $3 per data record it fails to convert into a call.

Why Pay Per Lead Benefits Brands

Why would a brand want to opt for Pay Per Lead? The answer lies in two elements of the Pay Per Lead relationship – one based in the power dynamics, and a second in the economics.

Pay Per Lead Means Power to the Brand

To understand why the balance of power in a Pay Per Lead model benefits brands, it’s helpful to take a step back and understand why a Pay Per Success model favors the vendor. As we alluded to above, the Pay Per Success model incentivizes the vendor to continually reassess the relationship. Often, the vendor decides that it’s in its best interest to drop the most challenging segment of the lead database, leaving the brand scrambling to find another solution. In other words: Pay Per Success models are structured such that the vendor takes all the risk, and so also gets all the power.

In Pay Per Lead arrangements, the balance of power works in the opposite direction. The vendor is given guaranteed revenue for as long as the brand chooses to continue the relationship. This incentivizes the vendor to act every way possible that’s aligned with what would keep the brand satisfied. This includes focusing efforts on quality lead warming, not just “tossing leads over the fence.” It also means the brand is incentivized to put their full efforts toward every type of lead that matters to the brand – not just the easiest ones to handle.

Economic Benefits

We’ve already referenced one reason Pay Per Success isn’t always as economically advantageous as it seems: “unsuccessful” leads, while free on paper, get baked into the price. That’s a downside to Pay Per Success, assuming the Pay Per Lead firm takes on unsuccessful leads at all. However, as noted, Pay Per Success firms tend to focus on the easiest leads to convert – and often even drop unsuccessful leads from the arrangement entirely. This means a lot when you’re asking which type of vendor is a better value.

• Many Pay Per Success vendors only work with the easiest leads, which makes comparing the two types of firms a bit of an apples and oranges endeavor. In reality, Pay Per Success firms primarily offer a service for leads that are easy to connect – not for tough leads. Brands must find other solutions for the “hard” leads – either through a pay-per-lead vendor who is incentivized to take them on, or through an in-house team. Either way, this second solution is another cost for the leads program.
• Pay Per Lead services, by contrast, offer services for all types of leads – no matter how difficult. With Pay Per Lead, brands can assume all of their lead warming needs will be covered.

It’s not just that Pay Per Success programs only cover half the scope of services that Pay Per Lead programs do. Easy-to-connect leads tend to deliver the most successes—which is of course why pay-per-success firms largely focus their efforts on them. Because Pay Per Success programs charge for every success they provide, this means brands pay more as the quantity of “easy” leads go up in the lead pool. Compare this with pay-per-lead programs, which charge the same price for work on any kind of lead – regardless of ease or difficulty.

Essentially, this means that Pay Per Lead firms not only have the advantage in that they cover the full range of lead work – compared to Pay Per Success firms’ half-coverage. Pay Per Lead firms also offer a far better value for the portion of the work they do. (For a detailed view of the economics, see the chart below.)

This economic advantage, coupled with the power structure, makes Pay Per Lead a far better option in most cases.