With potentially tens of thousands of dollars at stake each year and no guaranteed ROI the choice is menacing… should businesses use pay per click or pay per lead advertising channels to generate new business? Are you using the right one? You may almost feel the opportunity cost just drifting away…
Fortunately, they’re not mutually exclusive!
Have no fear– it’s not necessary to drop one lead-generation program in favor of the other, and both programs are easy to do simultaneously. (*Salesmen rejoice.*) Many software vendors who work with Capterra can and do participate in both PPL and PPC programs, and they often conduct multiple ongoing campaigns in each. Both programs result in more sales, so why not?
Be that as it may, there are aspects that software vendors need to know about both programs before running campaigns.
Pay per lead is a great choice for the vast majority of software companies. The concept is simple, software companies need leads, so they simply subscribe to a service and, in one way or another, purchase individual leads that have been vetted through a third party’s qualification process. What’s not to love? Not much because your risk is pretty limited. But vendors should focus on the most important question of PPL leads:
What should my organization be paying per lead?
PPL leads are enticing, and it can be easy to get caught up in the details of a lead before really thinking about whether or not the cost of the lead makes financial sense. (And this is especially true for software vendors in the more affordable, SaaS space.) Vendors should always consider the value that they would be willing to spend to acquire a customer, so that they can determine a reasonable cost per lead and not overpay.
To model, imagine that Ben & Jerry of Ice Cream Software estimate that their lifetime value of a customer is around $10,000. To gain another $10,000 customer, Ben & Jerry may be willing to spend around 10% of the total lifetime value ($1,000). That $1k is the cost per acquisition, or CPA. If the Ice Cream Software sales team generally closes 10% of all incoming leads to customers (close-rate) Ben & Jerry should multiply that close-rate by the CPA (10% x $1,000). The resulting $100 is an average cost per lead estimate (CPL). Ben & Jerry should never spend more than $100 per lead on an average lead through one of their PPL providers.
Cost Per Acquisition is $1,000 x Close-Rates at 10% = an Average Cost Per Lead of $100
Vendors often spend much more per lead than their pricing or close rates will allow. Remember, even though a lead might seem like a great fit, PPL organizations often sell the same lead to multiple vendors, so no sales are guaranteed. You should monitor your leads to see if your cost per lead is holding true and your close rates are within the norm. If the leads are too expensive, either work with your sales team to increase your close rates, review your pricing structure, or drop the source.
Google broke the $40 billion barrier last year in advertising revenue alone- businesses of all sizes from around the world are using pay per click. Yet, PPC is not right for everyone. While PPC has a great deal of potential within most organizations, campaigns rely on a few key elements for success:
- Optimized website or dedicated landing pages
- Conversion and referral tracking tools
- Clearly defined target market
One of the greatest selling points with PPC is that a vendor can begin a campaign and literally start to generate leads in as little as a few minutes. This speed is great, but a software website has to be able to convert that traffic at a high rate. If your website has no calls to action and no online form to speak of, don’t bother starting PPC until you’ve implemented those two key elements.
If you don’t know how to create an online form or you don’t have a web-designer to help make these changes, there are tons of resources on website and landing page optimization to get you started (e.g. Unbounce.com). It isn’t that difficult to develop a moderately optimized page, but it’s a must before starting a pay per click campaign.
One of the beautiful aspects of pay per click (as opposed to traditional channels like print, radio, or TV advertising) is that tracking is easy. Sadly enough, many vendors are not tracking paid traffic, and they don’t know if the money they are pumping into their campaigns is resulting in anything fruitful. Drop in Google Analytics on your site (it’s free), or upgrade to some more robust tracking tools like those offered by KISSmetrics or Hubspot, for example.
Also, when you start a new PPC campaign, it’s important to know your market. Vendors often target keywords that are far too expensive and broad for their own target audience. Pay per click is a great tool to reach niche markets, but only if you limit your campaign to reach those particular people, and don’t reach for expensive clicks outside your primary target (or outside your budget).
There are many situations why an organization may want to try PPC or PPL, but there are only a few major reasons to stay away from each program…
- Product is too niche – If you have an extremely niche product, it will be difficult for your ad channel to find leads, especially if the market is not saturated with competition to increase lead prices. Consider PPC if this is your situation.
- Product is extremely inexpensive– If your product is extremely inexpensive or free, PPL leads are likely going to be too expensive for your overall budget.
- Software is only for large enterprise companies– Exclusively targeting large companies is difficult to do through PPC because you’ll spend the majority of your money on leads that are too small for the scope of your product. If you target larger organizations, consider target account selling or perusing available PPL leads that match your particular needs.
So, to go back to the original question… which is better, PPC or PPL? The answer… it depends. But both ad models have unique benefits, and fortunately, you don’t have to pick one or the other!