Ep 3 Why Leads Continue To Get More Expensive

The Leads Game

"Why do I keep having to pay more and more for leads - shouldn't they be getting cheaper, the longer I advertise?"

It's a great question, and I'm going to approach this from a "year over year" standpoint, because that's where a lot of these factors come into play. Sure, when you launch a new traffic campaign - leads will be most expensive at the beginning, and lead costs will continue to decrease as you optimize things. In this case we're talking about days, weeks, and months.

And this is great - right?

Eventually, you'll reach a point where you just can't improve lead costs anymore - which is fine - your campaigns and everything that makes them work is fully optimized, and life is good. You routinely launch new creatives to offset ad fatigue, and you're monitoring things.

Well, slowly - over the course of months or maybe even years - your lead costs start to increase (no matter what you do), and you just can't figure out why.

Most people will blame it on the ad platforms, algorithms etc. - but these things usually cause short term issues. When we're looking at longer timelines and increased lead costs - it's more likely a natural development of the market. Now there are definitely other reasons, but the point I want to make - is that in my experience, lead costs rising over time is a natural market development.

Here's what happens in most markets as it relates to lead flow (and for simplicity's sake, we'll focus on "pay to play" platforms like Facebook Ads, Google Ads etc. - doesn't matter for this point.

Ok, so the day arrives when you've optimized your ad account, offers, funnels, follow-up etc. - to get your lowest possible lead cost - happy day. So, you continue work to maintain that cost (ideally to lower it, but you're happy if you can just keep the leads coming in at scale at the current cost) - right? Right.

Over time, you notice no matter what you do, lead cost start creeping - a little bit at a time. A year later, you're paying 25% more per lead - and you're trying to figure out why.

Here's why:

In most markets, two things happen that contribute to this:

1. New competitors enter the space, - and start competing for the same leads. There are only so many leads to go around - and the law of supply and demand kick in, causing leads to become more expensive. Typically, new competitors come in faster than existing businesses fail. Also, for more established platforms, the rate at which they're adding new users (potential leads), decreases over time. Neither of these work in our favor.
   
2. And the second thing that happens, is market sophistication. Your competitors continue improving their businesses, and increasing their new customer value - meaning they can (and do), pay more for every lead. This will continue until there are only a handful of highly profitable businesses in a market - and they "eat up" all of the leads because they can (and do), pay more (happily).

So that's all well and good - but what can you do about it?

Simple:

1. Always be looking for additional traffic channels for your lead funnels
2. Always be improving the back end of your business, so you can (happily), pay more per lead than your competition
3. Build "multipliers" into your lead processes that allow you to turn 1 lead into 2 (like referral mechanisms) - but that's a topic for another episode.

Point here is this: It's not always the campaign’s fault, or the platform’s fault, or anything like that - sometimes it's just the natural course of a market. The trick is in knowing how to tell what's normal, and outside of your control - and what's not. That's why we developed theleadsgame.com and it's one of the core missions of this podcast: to make you the best darn lead gen expert in your market.
See you on the next episode.