Are lead-generation services worth the investment?

February 18, 2016

... and the answer is, maybe.

Lead generation services are abundant and there is absolutely no reliable data on who is good and who isn’t, but there are enough customers for all providers to make a decent living or to at least persuade investors to support new technologies.

I get about five requests weekly to have a new lead-gen service demonstrate their wares. All of them use an almost identical pitch to describe the quality of their current lists, the abilities of their list screeners or the functionality of their artificial intelligence that scours the web for leads. I have tried about two dozen in the past year and I have discovered that none of the work as well as internal list development.

Let me clarify: the companies I work with (and my own company for that matter) do not try to reach millions of potential customers with their marketing. Footwasher Media does not do retail business. If you are in the retail business and you get a two-percent positive response from a 500,000-lead list, that’s a good investment. A B2B company looking to do a million-dollar deal with each of 10 customers in a year, a two-percent return would be good, too. But I have yet to see a B2B company get any return on a purchased list of lead-gen service, and zero-percent return is not good.

Why can’t these companies do what they say that can do for high-end B2B? First, because they all dip into the same set of Standard Industry Classification (SIC) codes to start their process and those codes screw up all the data. For example, I have taken flyers on a half dozen lead-generation technologies to see if they could deliver decent results. The process begins by me either giving them a list of 50-100 of my current customers (or client customers), or filling out a form that lists the industries, titles and revenues for the kind of companies we want to reach. That data is punched into the system and out comes…

Lists of lawyers, accountants and HR professionals.

That would be great if I was trying to reach those three groups, but I never am. None of those people ever invest in communication or marketing. Furthermore, they know nothing about communication and marketing. However, when they are filling out their industry classification that will list every kind of industry their clients work in. So if I am asking for a list of executives in the semiconductor industry, every lawyer, accountant or HR professional that works with semiconductor companies will be included in the list, even if I specifically request that they NOT be included.

The second reason lead-gen services fail to provide valuable information is the mobility of the leads. People move from job to job or get laid off. Right now, layoffs in the tech world are rampant, especially in middle management where initial purchase decisions are made. Companies regularly fail to update their websites and companies go out of business without taking down websites, yet that is the second source of data the services relief on.

There are Lead-gen companies that feature real human beings making phone calls to real human beings to validate the data they scrape from the SIC codes and web, and they charge anything from $12 to $100 per lead, based on what I’ve been pitched. Now, compared to trade show leads in B2B industries that cost about $200 per lead, that may be a bargain, but the question is, do they turn into business deals? Usually, no. but the human intelligence of this process is much more effective than the web scraping described above.

The services that do human screening usually have minimums in the thousands. So at the low end, you could buy a thousand leads for $12,000 and still have to close the sale. You might screen through them and find 10 percent are warm enough to make an initial meeting so you can say you’ve spent $120 per lead which is better than trade shows. However, Footwasher Media has discovered that internally developing that intel is more effective than hiring it. We can find a young, personable individual with no more than a high school education can be paid $15 and hour to take an internally developed list and create 100 warm leads within 8 hours or $120: $1.20 a lead. Those leads were developed using marketing automation software that costs $1000 per month for a subscription bringing the total cost to $10.20 per lead. For our clients, if one of those leads turns into a sale, it’s a 100x ROI.

There are lead-generation services that are results oriented (you don’t pay until you get the expected results) but they are just as expensive as the “humint” services, sometimes even more. In fact, we have discovered that the cost of third-party lead generation is as much as you would pay for a content marketing agency and marketing automation software per month, both of which do all the work in finding and turning leads into sales before the lead hits the salesman’s desk.

This is not to say you should not consider hiring one of these services, but remember, they are pretty much all alike and deliver pretty much the same results, so factor that in when you are making the budget decision.

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