Exposed: Lead Generation Chop Shops

Have you ever seen those online lead chop shops?

Or, worse, have you ever fallen victim to one?

What I’m about to say will make a lot more sense if yo have. If not, maybe I can spare you some agony and drama. Because today I’m going to tell you why lead generation chop shops are bad marketing – unless you are one of them.

Here’s the deal:

I call them ‘chop shops’ because they remind me of places car thieves drop off their goods. At these places,  the car is usually stripped down into its many individual components and the parts sold. Sometimes the identity of the car is altered for further use to an end buyer (typically in another country).

So what’s a ‘lead generation chop shop’?

Here’s my street definition:

A website where the visitor inputs their contact information in hopes that they will receive a phone call or email about a specific inquiry. On these websites, there is usually some light content (but not much) about the subject matter at hand. The visitor is under the impression that “an agent will call them” or that they will “get a quote” once they type in their name, phone number, email address, mailing address and sometimes much more information.

But this is not usually what happens.

What happens is…the visitor receives a barrage of phone calls and emails that rival a WWII B-17 bomber squadron….all within 1 nano-second of hitting the ‘submit’ button.

It’s all because the website you gave your information to is printing money each and every time someone hits enter.

The Business Model

From a high level, here’s how the chop shop business model works:

  • Website company has smart marketers working for them
  • Website attracts prospective customers looking for either  more information or quotes for innumerable businesses
  • Visitor/prospective customer clicks onto landing page, enters information
  • Website company sells the customers information to as many 3rd parties as it can, depending upon the industry it could be $3 to $100 and up per lead
  • These 3rd parties proceed to bombard the prospective customer with calls and emails
  • Customer reaction is either: frustration, confusion, apathy, anger or in rare cases a purchase
  • Cycle repeats

Essentially, if you were to search in Google for “health insurance” there would be a slew of organic results in the middle of your page. If you were to look to the left or above the organic search results, you would see all the pay-per-click (PPC) ads that Google is running relevant to your keyword.

Click on one of these ads and you have a high probability of landing on a chop shop, aka “lead generation” site.

When you type in your info to ‘get a quote’ and hit ‘submit’ the bombing begins.

Case Studies

My wife went to an insurance website almost 18 months ago to shop for a temporary policy. She isstill getting calls from agents. The messages she receives are trademark telemarketing (“…about that information you requested…I’ve got good news!”…).

I had a similar experience myself when I recently got suckered into one of these deals for car insurance. Should have known better. However, I must say it was amazing how fast my phone rang. The technology employed to make this happen for mom & pop’s is impressive. Used to be only the big companies had the ability to make this happen.

The Culprits

So who are these 3rd parties I’m talking about: It could be: insurance (all types), mortgages, contractors…you name it. Anybody that is looking for leads and is either: a. too lazy, b. ignorant  or c. too apathetic to generate their own.

Somebody gets sold on an idea that they need internet leads, or maybe leads in general because they have no other marketing going. They pay money to a lead generation company who charges them $x per name and they start piping them in.Then it’s time to dial for dollars.

What’s wrong with this?

Nothing.

That is…if you are the lead generation company.

Why?

Because if you are managing your PPC properly, your cost for getting someone to enter their info for a quote will be only a fraction of what you can sell it for. Here’s an example:

Cost per click: $5
Conversion rate (conservative): 10%
Cost/conversion: $50

Leads price charged: $10
Leads sold to: 10 agents
Revenue per lead: $100

Profit Margin per lead: $50 ($100 – $50)

Of course, I’m not counting the overhead costs of the lead gen. company…but it’s probably safe to say I’m being conservative on their conversion and CPC numbers as well. In addition, the whole idea of an internet company is to have light overhead.

Still, $50 per lead is a decent margin – especially when you sell a few thousand of them a day.

I’m thinking maybe I got into the wrong business?

Is The Little Guy The Bad Guy?

If this is so wrong, why is it such a big business?

First, I think it’s because a lot of purchasers of these leads see it as a shortcut to developing their own online marketing and lead generation. I can definitely see how it would be easier at first to go this route.

Secondly, let’s face it: when you’re making calls and dialing for dollars it sure feels like you are doing productive work. Call 100 people in a day and your bound to get some revenue going.

I agree with this…

In the short term at least.

In the long term, this is severely flawed thinking.

It is flawed because using this method of lead generation makes you dependent upon external sources for your business and also fails to differentiate you in any way from competition. You are essentially attracting price/window shoppers and paying a premium for it.

These people don’t want YOU  to call them, they want ANYONE to call them.

And the difference between the two is night and day.

Far better to pay $100 to generate a lead that only wants to talk to you, has been pre-qualified as a good customer and is ready to spend then it is to pay $5 per lead for 20 leads which were input into an internet web form in haste AND who are going to get calls from dozens or more of your competition.

The hardest businesses to run in the world are those that are perceived by customers as commodities. Price being the only differentiation.

If price is the only thing you give the customer to make their decision on, then that is how they will chose.

Why pile further burden on top of it by competing on price and then trying to win the phone race? You will surely lose the latter if you don’t have the best predictive/auto-dialer technology.

How Can The Little Guy Win?

Generating your own leads, leads that are attracted to your unique selling proposition is the only way to go.

In the long run, you will bring in higher quality customers. You will also have a business model that is sustainable. Remember, you must be customer focused. It’s all about what the customer wants. How can you add more value to their lives?

Just giving someone me a quote on car insurance won’t improve my life very much. Yes, I might save a few bucks on premiums (if I buy, but the quote itself does nothing), but then maybe I’ll just go to the next person who can save me money with a lower quote. Showing me how I can lower my premium by 15%, protect myself in the event of a roadside breakdown, explain unfamiliar terms to me in plain English, send me something in the mail instead of email, let your personality show instead of trying to be a corporate drone….all of these things add up.

And it wins business.

Success in Action

Tired of trying to navigate what I found to be a frustrating online car insurance quote process (I know, I know…it’s supposed to be easy…hmmmm) I ended up calling a local from a big national company. Expecting to be treated like a head of cattle, I was hoping to blow through the process and get done as quickly as possible. After all, those big insurance companies have conditioned me to only think about a rate quote and very little else.

To my surprise, this insurance rep was different.

She was personable, pleasant and offered more help than was asked.

I did not sign up that day. But she followed up with a personal mailing to me and my wife. She then followed up with another mailing before calling again.

Interesting.

What she sent me was informative, easy to read, relevant and helpful.

More interesting.

Even though the way we reached her was due to her being an agent of a large national company who has been advertising for decades, she was able to differentiate herself enough to earn my business. What’s more, I receive information from her periodically in the mail that is helpful, including a nice premium savings a few months ago.

Not bad.

Even though she had not marketed to me to bring me in (directly, at least) she still put on a display in what to do to un-commoditize her business as much as possible, making it less likely for me to switch arbitrarily.

It’s All About LCV

If you understand and adhere to the Lifetime Customer Value concept, marketing takes on a whole new meaning.

And…if you know the value of one single customer to your business (including: initial purchase, up sells, cross sells, referrals, repeat purchases, etc.) is $2,000, then why are you afraid to spend even a couple hundred bucks into attracting that customer to call you and only you?

Seems like a no-brainer to me.

I’m not clamoring for any regulatory activity or Google policing of the chop-shops. Their business will probably do just fine. And I’m a big believer in leaving things alone unless people are getting totally scammed.

But what a difference it could make for just a few businesses and especially customers, if the customer wasn’t just treated as a quote and data and people didn’t treat themselves like bushels of wheat or barrels of oil.

2 thoughts on “Exposed: Lead Generation Chop Shops

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