Is pay-per-lead SEO a good idea?

The pay-per-lead model sounds very tempting, especially if you are a startup SEO agency, but several things are to consider.

Transcript:

David: Tim, you had someone make you one heck of an offer.

Tim: Right. That was fing…and this happened probably a couple of weeks ago. And I kept forgetting to write it down to bring it up as a question just to kind of walk through because I feel like I know the answer to the question. But how do you handle that? How do you direct…? You pretty much shoot it down? How do I shoot that down respectfully? And prove my point.

David: Let’s start with the question, what was the amazing deal someone had for you?

Tim: To pay me for each and every lead that I bring them through their website. And yeah, so my initial reaction is, well I guess you’re not receiving anything through your website right now because you wouldn’t be willing to give that up if you were. So there’s nothing but room for improvement, I guess.

Tricia: I want to make sure I understand this. So someone else did their website, they want you to redo it? When say they’ll pay for a lead is it just marketing or what?

Tim: So in reference to just general SEO services rather than paying a monthly fee for them to make an investment in what’s going to work for them in the future instead of doing that, just paying a set amount for every lead that comes through the business whether they win the business or not, just a lead as a lead. So, I mean, there’s just so many ways to talk about it. But I mean, for example, we might not know that a lead went to their website, became a lead and contacted them some other way like, “How am I going to only get paid for contact form leads or leads that are tracked through this one phone number or something like that?” I mean, it might not be the decision that they make now. But it could be the original lead source of how they found, but maybe some other type of marketing tactic, remarketing or something stayed in front of them. Or if their social media account because they ended up following them that, that that was the reason that they ended up becoming a customer eventually.

Tricia: SEO is a long-term that you’re building up. What you’re doing now it might get them a lead later, but they might not look like a direct lead.

Tim: Yeah, exactly. That’s right.

Tricia: And you’re… Okay, David, I want to hear you because you got that look on your face.

David: I think this is an amazing question. So we’ll continue the conversation because I think it’s kind of a conversation. My former boss who is a mentor of mine to this day, I respect and look up to. I would not have started my business without his not only input but like cheering me on, frankly. He’s like you do it, you should do this. Don’t be afraid, do it. If he hadn’t like… This is how much respect I have for this guy. He eventually sold his SEO agency for a lot of money, okay? So he developed the agency that I worked for into something that someone wanted to buy, and he did well. So he knows his stuff. But one of the things he really knows and one of the things I really like about him is that he knows how to run a business, right? He’s got an MBA. He’s the kind of guy who plays NFL Madden on his Xbox because he wants to do the management. There’s a feature with NFL Madden where you don’t play football, you’re managing a team, that’s what he likes. He grew up playing lemonade stand and that was [inaudible 00:04:53.108] growing up. This is who he is, right? And so when he left after selling the agency he developed for a chunk of change, he said, “If I would have done it different, I would have done a price-per-lead model where you get money based on leads.”

Tim: Interesting.

David: And that, now mind you, he made a lot of money doing it not that way.

Tricia: Not that way, yeah.

David: He was like, “I wish I would have done it different.” Now, I don’t think I’m betraying trust to say the following. He went and started a different business because that’s the kind of guy he is afterwards. His other business that he started is Amazon Fulfillment. That is priced based on sales on Amazon. So in effect, he is doing a price-per-lead business model now. So someone I hugely respect who did it my way made off with bank wishes he wouldn’t have done it that way. Discuss.

Tim: What an interesting turn of events? How do you put a price tag on a lead?

David: That’s the first question. That is exactly right. How much is it worth? Because you’re taking a ton of risk?

Tim: Yeah. And I think the cost per lead for a financial advisor is much different than a carpet cleaner.

David: Right. So one lead could be… And how do we quantify that lifetime value first month? Right. For a financial advisor the money they’re making a percentage of the management of money they’re managing, right? Well, they’re financially incentivized to grow that, so their percentage stays the same, but their fee grows, right? If you’ve driven them a lead, where is that value calculated for you? The first month? Or six months later? A year later? Forever in perpetuity 1% of everything? How does that work out?

Tricia: And how do you keep up with it?

David: Well, that’s the second question. And, Tim, you’re kind of saying this to like, what is a lead? And can you objectively quantify and measure that in a way where there is no debate, right? Where it’s like, there is a number, that is the number we have agreed to. That is what you owe me full stop, no ambiguity. Because if it’s form submissions, we all know that the majority of our forms are spam, right, especially as you’re getting started, right? So do you get paid for each of those? Well, he’s not going to want to do that. Does he only get paid when he signs up a client? What if he’s a crappy salesperson, and you send him a ton of leads and he can’t close the deal, right? What if…I mean, so these are the kinds of questions that really matter.

Now, I will also say with that there are entire industries built around this premise. Not far from me, there’s a company called Red Ventures. And they built an entire empire doing this. And they do it for DIRECTV, for security, CPI Security Systems, for all kinds of…their whole premise. And they’ve developed a whole system to build this thing, right? And obviously, if you’ve seen their… Movie theater on their campus, like they are doing well. It’s also an incredibly aggressive environment which is kind of what you got to be there, right? 

And that’s the other thing it’s this, in a way, is almost like affiliate marketing. Because with affiliate marketing let’s say I know some people who did Roku systems in an affiliate relationship with Roku. Every Roku system they sold through their website, Roku would give them a finite amount of money. And they had a whole contract written up to know exactly what would be counted as a signup and they had some transparency of… And they had the ability to measure and then that number should match what Roku had and Roku would certainly check. And it was a big agreement. And they did really well with that. They also ended up selling their business because it was doing really well.

But with an affiliate relationship perspective towards SEO, you have to be really aggressive. And when I say aggressive, I’m saying a little bit on the darker side of SEO. Because if we are doing SEO for a business and growing that brand, we got to make sure we don’t burn that website. We can’t do that. We can’t burn their website. We can’t get the website, manned. I mean, it’s happened to me, I’ve done it before. It’s not fun. But with affiliate marketing, frankly, burn that website down, get as much as you can out of it and then build another one because the ends justifies the means for the income. And that is what these systems do. I have clients pitched all the time, especially in the legal space, we will…you will… What they do is reverse, they get the leads, and they charge people for the leads, you will pay us $100 a lead. Well, in their game, they know that some of those leads are worth millions of dollars. Some of those leads are worth nothing. But the net gain for the client is if I spend $1,000 to get 10 $100 leads, and one of them is a million-dollar client I’ll do that all day long, right? But usually, guys spend more than 10 to get that million-dollar client, so they end up spending $100,000 to get one $1 million client, which is still a great investment, but you got to have $100,000 to pay for that. So there’s a whole industry this way. What do you think?

Tim: I mean, it’s just what Google does with pay-per-click. And their customers are paying an auction price for that lead whatever they’re willing to pay. So I guess that’s kind of where you start to put some valuation on it like if you were to run a PPC campaign, what those keywords would generally cost to get those leads through Google kind of puts a marketplace value on that lead. If you’re just going with that…

David: That might be a way to price it out, yeah. I would increase it by twice, I would double it because the risk that you’re getting, right?

Tim: True. Right.

David: And frankly, the expenses you’re going to have to spend in order to be that aggressive. You’ll have to have upfront cash to do that knowing you might not get paid for a few months. And then they’ll have to be completely transparent and agreed-upon definition of what is the lead in a way that’s measurable by both parties that… And you’d have to have an ironclad agreement. I mean, it might even be worth hiring a lawyer to write that agreement because I mean… No, I will talk down about this, right? I had someone a couple years ago contact me with a really great idea, “I’ve got a really great opportunity for you David.” He had just successfully VC funded a software, a piece of software. He had gone through Series C which is like the third round of VC funding so it was doing great. He wanted to develop something new. And he said, “I will give you equity in the company if you will do work for me for free, but you will own part of this company.” Because normally I’d be like, “No way.” Because this guy just did that with another company, I’m like, mm-hmm. So I called my friend who worked for Node and was like employee number two at Node. And after that, she worked for Slack. I called her and said, “What do you think?” And she said, she explained to me about equity because that was the big thing. I didn’t understand what I was gonna get paid. I was gonna take an equity. I don’t know what that meant and I wanted to be clear. And she gave me some guidelines, write it out, written agreement, have a timeline. At this point, you are vested and that is it, you could walk away the day after that, and you will own that percentage of the company at that point. But at that point, you’re going to own 10% of the company. But later, that’s going to be diluted as VCs get involved. And you might end up with half a percent of the company because VCs are like, okay, that guy that owns 10%, if you want my billions of dollars, he now owns a half percent, right? And so she said, “You need to price so number one, you don’t lose money on this deal, you’re working for this guy for free if nothing happens. And two, understand what you’re really getting. For half a percent of a billion-dollar company might be worth it, right? But you don’t know. Will it fail? You don’t know. So I had this document written three grid. I worked for a year for free for this company. At the end of the year, I kind of had it with him and said, “Okay, it’s the end of my year, I’d like to cash out my equity or not cash out my equity. I would like to claim equity and move on.” And he said, “Well, let’s get on the phone.” This is right, like his marketing guy is leaving, okay. But the way he said it made me go oh oh. I went and reviewed the document that we had stating I’ve had an equity in the business and he never signed it.

Tim: Oh, man.

David: My own fault. My own fault. He never signed it. I’d never checked, I just assumed he signed it. And the software I used to sign had no record of him signing. And so I just didn’t… No, thanks for your call. I’m not gonna waste any more money on you. There I was like “Yeah, I’m not gonna waste…” I just said, “It’s lost, I lost it.” And then my friend’s advice of, only do what you’re willing to lose. And I’m like, “Okay, so I wasted a few hours over the last year every week. It didn’t hurt me financially. I didn’t have to pay cash to do this.” I didn’t have to pay writers or something to do it. It was only time. And it was at a time when my business was a little slower, so it didn’t take away from paid clients. But yeah, I was like, yeah, that sucked. That was a waste. That was disappointing. And I don’t own…the company is still active, and I don’t own the darn thing. I do have control of several of their assets. I am a nice guy. So, anyway, so you gotta write it ironclad and make sure they’re signed.

Tricia: And I would say based on that, and just the fact that I mean, I worked at a real estate attorney for 23 years. And so like, a lot of my mind, it’s like, you know, the specific details of that you’ve got things that written out and signed. To me, I would worry is that it’s one thing if you’re looking at doing this for multiple clients in the future, but for just one, I would look at it and decide is all of this preparing an upfront work worth it for one client that is it going to be worth it to you? That would be a question to ask because I mean, like, David said, write it out and figure out how things are done, but that’s going to take quite a bit of time. And as far as the leads and all, is it going to work out okay? Are all of your assumptions about things correct?

David: Now, going back to my mentor, he said with more information about what he wished he would have done, he wished he would have done a pricing model where there would be a finite fee to set up that cover the initial expenses, and then charge per lead.

Tricia: Yeah, a setup fee. Yeah.

David A setup fee, which is pretty standard even if you do like paid search. It’s gonna take so much of your time to set up your account. And so that might be another option. But getting on the same page with the client on what is the standard by which you’re paid and written in such a way where there’s no question on this is a situation where you get paid.

Tricia: Yeah. You don’t want every month to sit there and argue about what’s a lead and what isn’t? That would be a nightmare.

David: Right. None of these emails were any good. Does that mean you never called them? Or does that mean…? Yeah. So well, you shouldn’t be penalized if you didn’t bother to call a client because you didn’t think they were going to be good when they all…

Tricia: And that’s when you would absolutely want CallRail on other phone numbers that you’re working with because isn’t it David, CallRail like records and… Is it CallRail they record things?

David: Yeah, CallRail records, but then are you going to sit for how many hours debating with this person whether this is a lead or not? This call sounded good to me, but why did you not call it? Well, I just didn’t have time that day. Well, you pay me for that? Well, it’s not a lead because I didn’t call them. Well, the next thing he knows that… There have to be something.

Tim: Yeah, I wouldn’t do any stipulation on whether they landed the lead or not, whether they sold them or not. A lead is a lead. If you’re gonna pay me for a lead, pay me for a lead. Your sales ability has nothing to do with whether you get a lead or not. My biggest concern is if I’m going…whether I get paid upfront for the initial investment, even to cover maybe some copywriting for a year and all of that, right? Like if I get paid upfront or if I make the investment myself, and they’re paying me per lead, they can pay me per lead for three years. And then what? They’re good with me. They’re done. They’re happy with the leads that are coming in, but they don’t want to pay per lead anymore or how does that work? Because what I’m doing is evergreen, right?

Tricia: Exactly.

Tim: It was content optimization, it doesn’t just go.

Tricia: There is a stopping point like paid ads. And I mean, honestly, it’s like…

David: Man, you need to have a point where you’d say, do we change the pricing of this because it could come to a point where it’d be too expensive for him?

Tim: Yeah, exactly. Do you want to perpetually continue to pay me a percentage of your business as you develop? Or do you want me…? And I think I wrote that. I have to reread what I submitted to you. But or do you want me to help you grow your business at a fair wage for myself so that I have the ability to help many small businesses like yourself? And I’m not looking to take a chunk of your business. I’m not an investor. I’m a developer. I’m a designer. I don’t… I’m a strategist. I’m not an investor. And this is a financial investor. They’ll say, “Tell you what, pay me a fair wage. Help me get other clients by referring me. Be part of my case study. Tell people how great I am. And then I’ll invest with you because I’ll be profitable. And I’ll have money to invest with you.”

Tricia: Yeah, and if it’s a financial one as well, I mean, like David had said earlier, that has a much longer lifetime when they get a lead, it’s going to be worth a whole lot more than something that may have a shorter timeframe on it. I mean, typically, once you get a financial advisor, you typically don’t change unless something happens, you don’t like each other or you just don’t feel like they’re doing a good job. I mean, pretty much a lot of people get a financial advisor and stick with them unless something comes up. So that lead is going to be very valuable to them. And also each client is going to come on like their monthly clients. So how many…? Is there a point where they’re going to say, “Okay, we don’t want to grow as fast because we are almost at air capacity now we need to spend more on hiring or whatever before… At what point of their capacity?

David: Right. That’s true. And that did remind me of something my former mentor used to say too is, he was afraid of doing it because while he had paying monthly clients, what he was afraid would happen is that nothing would happen for the pay-per-lead client every month because why would you do effort into something that might pay off when you can or when you already have obligations, put effort into clients that are already paying? And he was just the ethical guy, where he was just like, “I’m not going to work, get paid, and not do work. So I’m going to do work for all the paying clients first.” Does that mean this guy gets leftover time of mine? I’m not really incent… I mean, I’m incentivized that, yeah, if you’d be successful, you’ll pay me, but ultimately, these people are already paying me so they get priority. And he was like, “I don’t know, how I would do it.” That’s where the whole paying upfront as a setup fee came from in his mind. But is this guy gonna give you access to his books to show how much money he’s making? Where do you verify this? That’s to me the big clincher. If you’re paying per lead, you’re gonna pay me X dollars a lead, for instance, or a percentage of the signup. It almost has to be a pay-per-lead not a pay-per-close, right? Knowing that you’re gonna have to pay me that dollar amount per lead even if it’s a crap, spam lead. Knowing that some of these leads are going to be great, and make you a ton of money lifetime. But you’re going to pay me for the bad leads, too because I can’t control who contacts you. I’m not sending spammers to… I mean, if you wanna be a real jerk, you could hire someone on Fiverr every day to spend $5 to fill out this web form, make $100 from that web form, but that would not be and that’s something you would ever consider doing. I know but…

Tim: So what if because there’s investment… Back to being an investor, what if there’s an investment on my time, even my dollar, if I’m not being paid upfront, if I’m hiring people to do work. If there’s this relationship commitment, then what about a price per lead plus equity?

David: That might be an option.

Tim: There’s a long-term partnership. It’s not…you cannot pay me per lead for the remainder of your business that’s perpetual because if I’m doing work now, it’s also going to bring you leads later that’s the idea of SEO. And so we have that plus I have equity in the business so that almost covers the game that I’m providing financially for them by providing them with leads that close. So the better leads that I bring to them, the more they close, the more they grow their business, the more we all gain, and I have a piece in that pie so that there is more incentive for me to do work for this in equal amounts to other pre-paying clients.

David: Would that expose you to liability as a co-owner of the business? Let’s say he isn’t a financial planner and extorted money from his clients, are you liable?

Tricia: You need to make sure you’ve got some E&O on something errors and omissions or something as something to cover that if that’s the case because you’ve got FINRA laws and all that stuff. Yeah, be careful on that.

David: You might have to have protections in place because you might have to know how many clients…is that publicly available? Is that information he is even ethically or legally able to share with you?

Tim: Right. It’s such a regulated industry to be in. The copywriting for that industry is gonna be…

David: Yeah, you’re gonna pay a pretty premium for that, right?

Tim: And the approval process of getting something approved.

Tricia: Yeah. Also, as his business grows, his reputation is going to grow and the value of the leads are going to grow because he’s going to start bringing in more valuable clients. So let’s say day one he hasn’t done anything. He has his first client. That first client is maybe worth a small amount, but a year from now, when he’s got a lot more experience and a lot more reputation, those new clients are going to be worth more in the long term and upfront.

Tim: Yeah, that’s a good point to write in some sort of real definition of the value of the lead, yeah. I think he’s been in business for 30 or 40 years or something that’s good.

David: That gives him credibility.

Tricia: It does definitely. I would say a part of that then would be the online credibility like if he’s been doing…has most of his business come from kind of in-person and contacts and networking? And what does his online reputation look like? And is that what needs to be built up to get the online…? Yeah, and the reviews and all that.

David: So unless you have any…do you have any other questions or ideas? Because I was going to share what I do.

Tim: Yeah. Go ahead.

David: So I feel like I’m in a shared employee of my clients. They don’t pay me a full-time wage, but they share me with other clients. This is like if I was a CFO I’d be a fractional CFO, a fractional chief marketing officer, right? Where you’re sharing me with other people. So as an employee, I should get paid a fair wage, right? He couldn’t bring someone into his office to pay only if that person generates leads. So why is this relationship with you like that? Now, I think you’re asking some good questions. But the way I handle guarantees for my clients… Because in way this is a guarantee, you have to have a guarantee, you have to guarantee for yourself. You’re gonna guarantee you’re gonna get some leads to this person since you get paid, right? But I explicitly say in my contracts, no guarantees. I can’t guarantee anything. There’s factors way outside, like tomorrow, Google shuts down or couldn’t search, I can’t predict that. Google does a super huge algorithm shift, and they totally do everything different. I can’t predict that. Your website goes down because your domain name gets lost because you forgot who owns it. These are things I can’t control that I can’t ultimately guarantee. What I can guarantee is I will work hard. So I go to all my clients and I say, “Month-to-month contracts is all I ask for.” So you can fire me at the end of this month. You could hire me for one month and fire me at the end of that month, if you want. If I’m not doing a good job. If you hate me. If you don’t think I’m doing everything I promised, fire me. You can fire me at two months. You can fire me at six months. You can fire me at two-and-a-half years. You can fire me at any month you need to. So I am now incentivized to do good work for you if I want to stick around. So the incentive for me is to work hard or you will let me go. And so that is my incentive to really deliver those leads is because if I don’t, you’re gonna fire me. And you can fire me at the end of any given month.

Now, I will ask my clients give me six months, right? It’s gonna take six months for this to work. But theoretically, they can fire me two months in and that’s fine. That’s where the agreement’s written and that’s the best guarantee I can give. You don’t have to pay me for a year of SEO even though let’s be honest, it’s gonna take a year’s worth of hard work to make this work. But you can fire me after two months if I don’t work with your team well, if you’re not happy with what I’m doing, if the quality of the content is terrible, if you for any reason you want to. You decide that you’re not gonna do SEO anymore, or you’re gonna move all offline or whatever you fire me. And that’s the guarantee. The guarantee is you can get out of this quickly, with no harm. And I know, ethically I’m going to extricate myself professionally from this, I will give you access to your analytics. I will give you access to all the things I have built for you, they are yours, you own them. And I will give you access to that stuff. If I’m paying for assist service like CallRail, I will let you take that up. I can just transfer that you keep using it uninterrupted. But so now the guarantee I’m offering you is I really better work hard because if I start sloughing off, you’re gonna see the results and you’re gonna be like, “You know what, David? I’m done. Okay. Okay.” That’s the guarantee. And so I am not prepared to do a paid-per-lead situation. But I will promise you that I will work hard. And if I’m not doing good enough, then you can say goodbye. And you can find someone else or you can do something else. Like that’s up to you. But my job is to prove to you that I’m doing well. That’s why these monthly reports are so important, right? That’s why we focus so much on conversion tracking and conversion quality because I want really quickly to start showing them what I’m giving them. That’s why the game plan is written this way because I want really quickly to show that I’m delivering value. I know that the first month, they got twice as many leads the previous month because we started phone call tracking and now they’re getting leads that they didn’t know they were getting. Is that the result of SEO? Not really. But now I’ve instantly doubled the value, right? And I know it is I keep doing SEO, they’re gonna get more. But instead…that’s how I approach it.

Tim: And yeah. I think pointing out the…I don’t know, just the ethical angle of that too. Like, I could do the same thing with this guy, I can turn on call tracking. I optimize his form on his website, and I could start making money right away knowing that that’s not the result of SEO. And I just refuse to operate that way because that’s what makes me sleep at night knowing that I’m truly helping somebody in the proper way and not taking advantage of the situation.

David: Yeah. It’s a great question and so many people have come to me with really great offers.

Tim: I bet.

David: And, I mean, I got clients who have made…like I’m a rounding error in their marketing budget for the amount of money they got coming in. And in hindsight, I wish I would have gotten a percentage of that, I’d have a lot more money. But I’m kind of fine not. Like, I don’t think I would have been able to do as well with that. I don’t respond under that kind of pressure very well, some people might.

Tim: Well, and it’s not to say that you still can’t have a pricing model by value, right? And not just a straight out of the gate this is adaptable to any industry. It’s about the value that you’re delivering, and still, what does a lead mean to them? How valuable is it a lead to them?

David: Right.