Stop Wasting Time On Leads That Don’t Convert:
How to Optimise Your Cost of Outcomes
Picture this: Business was going great, and then some unexpected changes happened. There was COVID-19. You realised that more of your customers in Indonesia are going digital, and so are your competitors.
As a marketer you were used to being measured on clicks, impressions, website traffic. But now, your management wants you to deliver business results – like actual sales! – and prove that their investment in marketing is delivering value. How do you transition?
Or perhaps you’re in sales. You can’t go out to meet prospects. Maybe you’re expecting leads from your marketing team, but the leads they’re sending in are mostly junk. Sounds familiar?
Why Leads and Clicks alone don’t work
Because of the scenario above, more businesses are focused on making sure they’re bringing in actual leads, which will hopefully convert to customers. You may pay your advertising agency a pre-agreed amount for each lead that comes through – for example, filling up a form or downloading an app or submitting a credit card application.
Your agency or your marketing team may be bringing thousands of leads a month, which is a great start. But put yourself into the shoes of your Chief Sales Officer. Imagine getting 1000 leads, paying a previously agreed upon amount for each lead, and making no sales out of them. We’re back to square one. Junk leads are little better than vanity metrics.
For certain industries, the sales process is complex or the product is pricey. Real estate, education, credit cards, e-wallet registrations or even high-end automobiles, require a screening process to ensure leads meet certain eligibility requirements (e.g. income levels, credit history, identity verification).
Since revenue from a home purchase is a substantial amount, the marketer would agree to a large cost per lead. However, this cost per lead can backfire, if the acquisition or lead is defined as “each successful viewing”.
Here’s the mathematics:
- You agree to pay USD 500 per application for a property viewing.
- You get 200 applications at the end of your first quarter.
- Unfortunately, out of those 200 applications, most of them turn out to be casual browsers. Only 1 makes a down payment for a home worth USD 185,000.
- You would have paid USD 100,000 for only 1 successful application.
- And the company only makes USD85,000 for that sale after deducting the amount paid to their agency.
You’ve also wasted your sales team’s time chasing after prospects who aren’t serious about buying a home. Not a very efficient campaign, whichever way you measure it.
Moving towards a Cost-Per-Outcome model for business success
Now imagine if you choose to pay for the actual sale instead. We call this a Cost-Per-Outcome.
- You agree to pay USD 10,000 CPO to your agency
- The agency still brings in 200 leads, but only 1 sale is closed
- Even though you increased your Cost-Per-Outcome (CPO) 20x (from USD 500 to USD 10,000), you only pay USD10,000.
- And you’re left with USD175,000 after paying your agency.
Marketing looks good. Sales are happy as they’re left with time to search for more serious buyers. The business is in better shape.
A Framework for Setting Cost-per-outcome (CPO)
The process for setting a CPO for campaigns can vary based on the desired outcome, and the nature of the business.
Here are a few things to consider before setting cost-per-outcome targets for your agency:
Based on your industry, category, experience, and past campaign performance; set appropriate benchmarks for CPO for your agency.
Depth of Journey
Choose to pay only for your desired outcome, which could be a successful credit card application, app sign-up, or even the number of final approvals/sales – it’s really up to you to decide.
Forecasting potential monthly growth in your category/product niche will give you an indication of whether this works.
Transparency on platform restrictions, attribution alignments, feedback loops for qualified closures, and assessment of remarketing capabilities.
With the CPO pricing model, advertising becomes an investment, instead of a sinkhole for cash. Clients only end up paying for desired outcomes, without risking heavy spend. As we head into the new normal, we need new approaches to marketing and sales — one that ensures marketing is contributing to the bottomline of the business, and helps sales get their job done better.