When Is A Lead Too Expensive For Your Program?

This article is in response to emails I get on a regular basis about the cost of leads and what is the right lead for your program. I certainly understand about the cost of leads. When you see that a lead costs 50 cents or $5.00, or a batch of leads that costs $75 or $175, it can be a bit overwhelming in knowing how to determine how much is too much.

Every business, whether a business you work out of your house or a brick and mortar business must determine their "Cost Per Customer" (or in our case Cost Per New Associate).

Companies like McDonalds or Dell Computers don't just throw money aimlessly at TV ads or Magazine Ads. They know what it costs to acquire a new customer. This helps them determine wise marketing dollar decisions as opposed to poor marketing dollar decisions.

For example, Dell Computers may spend $1 Million on a magazine ad that will help them get 750 new customers that spend an average of $1,200. That totals to $900,000. But, Dell knows that one-third of these customers will also buy an extended warranty, a second computer, or some other accessory within the first 3 months.

They also know that another one-fourth will buy another Dell computer within 3 years. So, their profit on this magazine ad is almost 100%. They spent $1 Million to make $2 Million. That makes good business sense when looking at spending marketing dollars.

Now, that is a very simplistic look at how Dell may make a marketing decision, but you get the general idea. There are a few factors that you need to consider to help you determine what is wise when it comes to purchasing leads.

1) How much do you make when you enroll a new distributor or associate? Whether this is a fast start bonus or your commission, this is very important.

Some "lower dollar" programs have a $10 - $20 fast start bonus. Some "middle dollar" programs have a $30-$100 fast start bonus. And some "higher dollar" programs have a $200 - $1000+ fast start bonus.

2) How much will you potentially make over the next 1 - 3 months from this new distributor or associate. Whether this is residual income or ongoing direct commissions, you need to know these figures.

This is not easy to calculate until you begin to see larger numbers of people go through your orginization. What percentage are recruiting new people, who is ordering product, etc.

Some average numbers that a company president gave me are this:

• One in seven will quit within 30 days
• Three in seven will continue to use the product for at least 6 months
• Two in seven will refer another person or two and use the product for at least 1 year.
• One in seven will be a business builder and make you a lot of money.

So, how much money will you make from a distributor over the next 1 - 3 months? You have to figure that out for yourself based upon product purchases and recruitment.

3) Do you have more time than money or more money than time? Many people simply don't have large bank accounts to spend hundreds and hundreds of dollars on leads. If that's the case then you need to buy cheaper leads and focus on your warm market until your money begins to catch up with your time.

Others have more money than time, so investing more up front makes more sense to them until their time begins to catch up with their money.

Here's are a few generalized benchmarks that I see. Of course, this will vary quite a bit depending on how you calculate #1, 2, and 3 above.

If you are in a "higher dollar" program, it seems reasonable to be able to recruit 1 new associate for every 35 - 50 real time leads you purchase. Maybe more, maybe less. But spending $175 on leads to make a $200 - $1,000 in fast start bonus, plus the ongoing residual income makes good business sense.

If you are in a "middle dollar" program, it seems reasonable to be able to recruit 1 new associate for every 25 - 40 leads you purchase. You should use either real time leads or fresh leads because you will be able to easily exceed your marketing expenses within 1 - 3 months.

If you are in a "lower dollar" program, then real time leads are probably not your best choice. You should focus on using aged fresh leads for 50 cents to $1.00 per lead. This makes better business sense because you can make that money back within 1 - 3 months.

The main purpose of this email is to help you begin thinking like a marketing director when building your business. You need to see the big picture and look beyond today. I know you need money today, but you are building this business for a better future too.

When an NFL player signs with a new team, he usually gets a signing bonus. Edgerrin James got a $7 Million signing bonus when he joined the Arizona Cardinals, but will make another $23 million over the next four years. The up-front money is very nice, but the big money is down the road.

I would encourage you to get out your company's compensation plan and begin calculating fast start bonuses, residual bonuses, etc. until you come up with a reasonable figure that can help you determine what the Cost Per New Associate is. This will help you decide what type of lead is best for you.

After all, how long do you think Dell would be in business if they spent $1 million only to make a total of $900,000, and got no more money from their customers down the road. Not very long.

How long will you be in business if your expenses exceed your total revenue over time? Not very long either.

But, how long will Dell be in business if they never spend money on marketing? Not very long either.

If you'd like any help with this, drop me an email or give me a call and I'll see how I can help. Be wise and if you make your calculations correct, then you'll soon find out that you can put $75 toward real time leads in order to make $200 over the next 3 months.