Lead Gen Business Model ExplainedBy Jamie Toyne
Pretty much every business in the world needs a constant stream of new clients. So, is it any wonder that lead generation services have exploded in recent years? This business model, that generates leads or potential clients for local businesses, can be applied across endless different niches and locations.
This means there is a potential for this business to be highly profitable, fairly passive and totally scalable. However, there are quite a few aspects to understand when running a lead gen business. So let’s break it down, explore the pros and cons, as well as assess the issues around buying and selling lead gen businesses.
What is the lead gen business model?
So let’s start with the basics, what exactly is the lead gen business model and how does it generate revenue? As the name suggests, this model is about generating highly targeted leads for a specific type of business. These leads are then sold to said business, who will then have the opportunity to convert the leads into clients.
For example, a lead gen business may provide their gym-owner client in Seattle with phone call enquiries from people looking to join a gym in the local area. Lead generation is not about providing the final paying client (although that is the end goal), but providing opportunities for potential clients which are usually qualified and charged for based on Cost Per Action (CPA). The action could be filling out a web form, making a phone call, or filling out an online survey etc.
Different types of lead generation business
So, now we know what lead generation is. But how does a lead gen business actually find these leads and hand them over to their clients? There are a couple of main ways that this business model runs; through affiliate lead generation programs or through finding and working directly with local clients.
If you go for the affiliate route, there are many affiliate programs you can use. These have a variety of different offers to choose which pay out per lead based on leads completing a form or making a phone call etc.
Once you choose an offer that works, you can build out a website around this offer. Then simply start driving traffic to the site and see the money start rolling in. The affiliate business model is a very passive model that involves little involvement from you.
With a lead gen business model, you don’t have to go down the affiliate route. It is also possible to reach out yourself to local clients and charge them directly for generating leads for them. You might sell the leads or even rent the lead generation website to your client.
You may charge these clients a monthly flat fee, a set price per lead, or you could even charge a percentage of earnings. This method has more involvement from you but can have much higher profit margins and earning potential.
Positives of the lead gen model
There are loads of positive sides to having a lead generation business model, let’s take a look at what they are.
A great pro of the lead generation model is that it can be very lucrative. Especially if you use organic traffic methods as these can drive people to your site for free. If you use an affiliate program the cost per lead will already be priced but if you choose to reach out to your own local clients, you can set your own higher prices.
Low startup costs
The start-up costs of a lead gen business are low. Other than purchasing a domain and web hosting you don’t need to invest in many other costs. You can use SEO and backlinking to rank your page highly on search engines which can drive free traffic to your site. If you decide to go down the route of paid traffic, you may need to budget for this down the line.
Easier to rank locally
A plus of the lead generation model is that you target highly specific local areas. This makes it easier to rank for geotargeting keywords that target specific local areas. For example, it will be easier to rank for dentists in Boulder, Colorado, than dentists in Colorado as a whole.
The more targeted the area the better as you lead will be more highly targeted and therefore more likely to convert to customers. There will also be less competition to rank highly for a smaller area. You can even narrow into suburbs where even fewer people will be competing for rankings.
Another great pro of lead gen businesses is that they are a pretty evergreen model. Small and medium businesses will always need new clients. With hundreds of millions of small businesses in the world, a figure that is only growing, there will always be a demand for lead generation.
It is important to keep up to date with lead gen methods, especially technological updates or algorithm changes, but the service will always be necessary.
Positives of the affiliate model
If you decide to go down the affiliate route, you may consider the following positives of the business.
A lead gen business using the affiliate model generates a pretty passive income. Once the site is set up and links and offers are in place, the site will tick over making money as traffic comes through. This can be great for people looking for a hands off income stream.
Many affiliate programs available
There are a host of different affiliate programs available. Each has a variety of campaigns to choose from for which you can agree to generate leads for a set price. These usually pay per lead offers. Some affiliate programs you might consider are Ring Partner or Campus Explorer.
Easier to sell the business
An affiliate lead gen business is easier to sell than a direct customer one. This is because it is much simpler to transfer over to the buyer. It doesn’t involve contact or negotiations with clients, there is less risk of not being paid and payments are easier to track and follow.
Positives of the direct model
Now let’s take a look at the pros of lead gen businesses that involve finding and reaching out to find customers yourself.
The main upside of this method is that you can charge a lot more for your service. You can charge monthly retainers to your clients who will gain leads from your website. This is also a repeatable and scalable system.
Easy transfer to similar clients
If a client does not pay you, you can usually find a replacement client who is in the same niche and location. You can easily transfer these leads over to them so they will not be wasted and you can still be paid.
Negatives of the lead gen model
Now let’s dig into some of the negatives of this business model.
Not all traffic is good traffic
As the lead gen business model specifically targets local and hyper local areas, this means that any traffic or leads that fall outside the parameters are essentially useless. A dentist in Chicago for example will not have any use for leads needing a dentist in Houston. This means lower traffic but it does mean higher conversions.
Negatives of the affiliate model
Let’s take a look at some of the negatives that apply specifically to the affiliate lead gen model.
If you go the affiliate route you are limited to the offers and campaigns that are available on the affiliate platforms. There are not so many to choose from, like there are other affiliate marketing products, so this limits where you can take your business.
Compared to reaching out to clients yourself and charging retainers or an earnings percentage, going down the affiliate path offers more earnings limitations. The listed offers usually offer a fixed CPA, so you have to focus on boosting leads rather than negotiating higher prices.
Negatives of the direct model
Are what are the downsides of going it alone with your lead gen business.
More hands on
This business model is more hands on than the affiliate model, so not best for someone looking for a totally passive income. General outreach will take more time and effort to secure, along with budgeting time for client communication. Also remember that you are convincing businesses to trust your skills and sign up with you, while businesses signed up to the affiliate program are already ready and willing.
This model also runs a higher risk of a client not paying, or stopping working with you altogether. If you can’t find a replacement client that matches up to the hyper-targeted niche, location and offer, it could be a disaster for your site. If you decide to sell your site this could also be difficult to manage with your existing client base who might not be happy with someone new.
How to grow a lead gen business?
Once you have a functioning lead generation business, how can you grow and scale it? Let’s take a look at some of the best ways here.
Optimize and rank
To successfully improve and grow your lead gen website, Search Engine Optimization (SEO) is key. This can help you rank highly and drive more traffic, and therefore more leads, to your site. Also never underestimate the power of high-quality backlinks from others in the industry. You may be able to use Facebook groups to find similar contacts where you can backlink each other’s sites.
To boost traffic and get more leads, you may also consider investing in paid advertising. Social media ads can help you drive more traffic through to your business and increase your results.
As discussed, lead gen businesses usually work by targeting very specific local areas. However once you have mastered one, there is nothing to stop you adding other locations into the mix. You can build new pages to target other places where the offer is available or where you are able to secure a new client.
Add new offers
You may also decide to place more offers alongside your original one. If going down the affiliate path, you may find some similar or related offers that you can add to your site to compliment another. This means that your targeted audience will still be relevant but you may be able to increase clicks, action and profits.
Rinse and repeat
If you are able to buy or build a successful lead gen site for one client or offer, then there is nothing to stop you doing the same again. Once sites are built and ranking highly, they are fairly passive to maintain. This means you could easily run several at a time to maximize your income and profits.
Buying and selling a lead gen business
So perhaps you like the sound of the lead gen business model and considering buying your own lead gen site. Or maybe you have built up your own lead gen business and are looking to sell and move onto something new. Let’s take a look at everything to consider below.
Should you buy a lead gen business?
If you are wondering whether or not a lead gen business model is for you, ask yourself the following questions to find out.
Do you want a hands-off business?
If you are looking for a low maintenance business that can generate you a passive income, then an affiliate lead gen business model could be for you. This model means you can avoid dealing with clients and client issues, simply place your links, do your magic to organically send traffic to your site, and make money even while you sleep. If you already own a portfolio of businesses and would like to add another stream of income, this could be a great business model to consider.
Do you want to grow your existing business?
This could also be a great option for someone looking to grow and expand an existing business. If you already own an agency for example, building up a collection of lead gen websites might be the perfect thing to grow your brand and complement what you already do.
Buying a lead gen business
If you are looking to buy a lead gen business make sure you consider the following before jumping in.
Check the traffic
As we have discussed, any traffic that is not the RIGHT traffic, is totally useless. If you are looking to buy a lead gen site make sure to check that the traffic coming is highly targeted for the offer at hand. If it does not work for the offer and location, you will not be able to generate leads of any value.
Make the most of Google Maps’ 3-Pack
If you are thinking of buying a lead gen business, it is worth knowing about and making the most of Google Maps’ 3-Pack. Even if you have never heard of 3-Pack, you will certainly have come into contact with it. And it can be key for a successful lead gen business. 3-Pack are the three businesses that you see pop up at the top of a Google search for a location-specific search. For example, if you were to search for dentists in Boulder, Colorado, you would see the following:
These businesses appear above organic traffic so can help to give you a huge traffic boost. There are a variety of ways to rank to appear in 3-pack. It is worth spending some time looking into this and implementing some strategies to rank there.
- These include:
- Getting more reviews
- Having NAP (Name, Address, Phone Number) consistency across the web
- Optimize your site
- Optimize your Google My Business listing
Selling a lead gen business
If you are looking to sell your existing lead gen business, you may want to think about the following aspects to make sure that the sale will run as smoothly as possible.
Get your figures in order
The first thing any new buyer will want to do is see your proof of earnings. This can be more difficult to prove if you work directly with local clients as payments may not all be streamlined and accessible in one place. You may need to let the buyer log into any payment platforms that each client uses to verify the figures.
Create a handover strategy
Handing over a business to a buyer can be complicated, difficult and a whole lot of hassle. Especially if you work with clients directly. You should create and implement a strategy outlining how to make all aspects as smooth as possible. This should include things like how to hand over payments to the buyer, or how to handle any existing clients that are renting your site.
So, there you have the lead gen business model broken down. Wherever you are at, whether thinking of creating your own lead gen sites from scratch, improving your existing ones, buying a lead gen business or selling yours, make sure you choose the right strategy and make smart moves. Overall, a low-cost, high-profit model, is an awesome way to make money online and build your online empire.
Also Read: The Five Primary Business Models Explained