Getting the most out of cost-per-lead online advertising

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It is no secret that cost-per-lead (CPL) online advertising has become the lifeblood of many direct marketers today - a plentiful source of low-cost, high-volume consumer leads. In the process, online lead generation has become the fastest-growing segment of online advertising expenditures, growing a whopping 74 percent in 2006 to $1.3 billion, according to the Interactive Advertising Bureau.

Effectively outsourcing lead generation campaigns to third-party agencies does come with several risks, however. One concern that has come to the forefront with many CPL advertisers today involves the consistency and quality of the online leads they are receiving. While the process between the buyers and sellers of online leads is gradually becoming more transparent, the fact remains that many firms are losing visibility into campaign tactics and publisher sources.

This is the double-edged sword of online lead generation: While large volumes of leads can be generated, the quality of those leads often remains largely a mystery until after they hit the call center or mail fulfillment center. Many direct marketers have experienced wildly uneven conversion rates, which have triggered a shift among marketing pros towards a greater focus on the quality, rather than quantity, of purchased leads.

Ultimately, the risks of CPL advertising need to be weighed against the returns, which can be measured objectively in terms of incremental revenue and total costs. In dealing with third parties that provide large numbers of low-cost leads, marketers need to be smarter than ever in managing costs in the lead-to-conversion process. Having contact center agents pursue poor-quality or unqualified leads to their inevitable dead ends can translate into unacceptable conversion costs that badly damage marketing ROI. The questions are: How do I assess all these incoming leads, and how much budget should I devote to converting each purchased lead?

Fortunately, concrete lead evaluation and scoring techniques exist today that can guide online lead buyers' decision-making. Predictive modeling proved its worth a long time ago in the traditional direct marketing industry by helping segment prospects and house file lists prior to launching direct mail campaigns. This translated into better-targeted lists, higher response rates and superior ROI. Now, in the real-time, online world, a service provider can "score" leads using predictive statistical models that measure the probability of actual conversion - giving advertisers a way to objectively assess the quality of an online lead. Custom predictive models can be developed that utilize past campaign results appended with identity, demographic and behavioral data. Once developed, the model provides a simple three-digit score that can be used to assess each new, incoming lead, and automate decisions. By scoring every lead received from the lead source in real time, marketers no longer need to fly blind with their lead management efforts.

Real-time scoring of online leads has some big implications for direct marketers who rely heavily on CPL advertising. First, it gives them a way to reject low-scoring leads altogether. Alternatively, many CPL agreements come with scrub rate provisions, and scoring provides an easy way to identify those for kickback. Next, it allows for better allocation of contact center resources by prioritizing those leads with the highest likelihood of conversion, while at the same time avoiding follow-up phone and mail costs on very low-scoring leads that may only warrant a low-cost e-mail trigger. Ultimately, predictive scoring of online leads can facilitate a rational, tiered pricing structure for leads, allowing lead buyers to negotiate and pay different rates for different quality levels of leads.

Just as banks use credit scores to make instant decisions about whether a consumer qualifies for a loan and at what interest rate, predictive scoring can help direct marketers effectively assess CPL buys and, in the process, maximize ROI from their CPL advertising budgets.

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