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How to Value Your Lead Generation Business

Branden Schmidt September 7, 2020

How to value your lead generation business

Are you interested in learning how much a lead generation business is worth?

Put into simple terms for those who might not be familiar with the lead generation business model, this monetization generates revenue by providing leads (potential customer information) to a business. These companies could be international universities looking to fill their classrooms with new students or a local contractor looking for new customers to provide their services to.

The strategy to be successful in this model is finding the highest-quality leads for your business clients. You then sell those leads to your client, and they start the process of converting them into paying customers. As you increase the quality and number of leads you produce, you can begin scaling your pricing structure to match the demand for high-quality leads. Many of these business owners will pay you either a monthly retainer fee to keep this lead generation platform you’ve created for referring new customers, or on a purely pay-per-lead basis.

This monetization is especially lucrative to those who enjoy being location independent, as you could easily manage this asset without being in your client’s or target audience’s physical locations. Providing leads as a service was something many portfolio buyers have told us produces less worry compared with managing the logistics and shipping issues that frequently surface with many Amazon FBA and eCommerce business models (learn more about the return on investment [ROI] Amazon FBA study here).

Generating leads for clients may seem like an easy concept to understand, but let’s take a look at what a lead generation business looks like on a larger scale.

Examples of Lead Generation Businesses

With an easy barrier for entry when it comes to smaller lead generation start-ups, competition for this model is always growing along with the demand for the service itself.

Businesses of every type are turning to new ways of reaching potential customers without the hassle of performing any outreach or advertising themselves. Lead generation services are closing the gap between those looking for an automated platform with a steady source of potential leads and spending countless hours on marketing and advertising in hopes of gaining a potential customer. Here are a couple of lead generation businesses that will give you an idea where this business model could take you when optimized properly.

Upwork

If you’ve spent any time searching for the best places to find outsourced help, you’ve most likely noticed someone talk about this platform.

Upwork connects businesses or individuals with tech freelancers to collaborate on various digital projects. On a larger scale, it also provides leads to companies looking for professionals with knowledge in web development, sales and marketing, analytics, and customer service, among a list of other skill sets. This, along with providing a platform that is easy to use, is what makes Upwork a great example of a well-optimized lead generation business.

Campus Explorer

A little different from your typical lead generation business for local products and service providers, Campus Explorer generates leads for popular universities and colleges all over North America.

It provides a comprehensive database of over 8,000 schools, including public universities, private colleges, community colleges, online schools, distance learning programs and graduate schools. Campus Explorer provides informational content and reviews directing traffic to the universities after filling out a simple form. This is important to note, as by taking this extra step, Campus Explorer provides leads with much higher quality compared with sending its clients (the universities in this case) nothing but names and phone numbers.

Some companies will only qualify someone as a lead if they fill out two forms. This is something that you and your client will discuss when deciding the lead qualifier you’ll choose, but the foundation is the same. For every qualified lead form submission sent to a university in this case, you receive a finder’s fee for that lead generation.

These are just several examples of what a larger lead generation business might look like from the outside, but let’s discuss what makes this monetization so lucrative to investors.

The Benefits to Managing a Lead Generation Business

The lead generation business model is highly sought after by many entrepreneurs for how passive it can be, similar to managing Amazon affiliate sites. Once you have produced your landing page and start to gain valuable contact information for your client’s offers, keeping track of these conversions will be the primary focus. This can easily be automated with customer relationship management services like Hubspot.

A majority of the work required to be successful with this monetization will be fine-tuning your search engine optimization (SEO) and split testing your calls to action (cta). Once you’re able to produce high-quality leads using a dependable strategy that works, well-designed landing pages, and a marketing strategy geared towards previously collected data, the potential to scale is endless.

Unlike most other monetizations you’ll find on the marketplace, the lead generation business model offers an alternative approach to gaining customers. Instead of joining a market share with other product and content creators, you’re offering a service to provide those same individuals and small businesses with customer leads.

The types of leads you produce for location-specific clients will also mean the keywords you’re trying to rank for will become less competitive (i.e. “teeth cleaning in Hawthorne + California” or the given city and state your client may be in). Another attractive component of this business model is the work required to generate consistent leads, which will often be front-loaded. Building your platform or local lead generation page is something that will take time to not only produce but also start ranking organically (if going the SEO route) or produce quality pay-per-click leads (if going the PPC advertising route). Similar to many affiliate models, once the site begins to generate a steady flow of leads for your client(s), maintaining this traffic flow doesn’t usually require as much effort.

This is why we suggest purchasing a lead generation business on our marketplace that is already in motion to skip the start-up time required to build one from scratch. While managing your own lead generation model offers a great opportunity if you are looking to own a passive income stream, this model has a few drawbacks you should be aware of.

Drawbacks to the Lead Generation Business Model

Gaining organic traffic is usually the best approach for many lead generation businesses, but it is important that any marketing efforts you spend on gaining new leads be within your target area. If your client’s offer is for a service provided in Hawthorne California, it wouldn’t be relevant to someone who is living in Sacramento.

This is where the lead generation business model can become troublesome as your keyword intent might not always be recognized by Google. The more specific you are with your outreach offers and content, the higher your conversions will most likely be.

Another drawback to this business model is that if you decide to go direct and stay away from generating leads for larger businesses, you run the risk of individuals failing to pay you for the lead information you’ve provided to them. This can be highly destructive to your assets’ earnings if you can’t find another client to start paying for those leads in that specific market. This can also make selling a direct lead generation business a bit more difficult to migrate when sold should the assets’ ownership be handed over to someone your direct lead clients are not familiar with.

What to Know Before Buying a Lead Generation Business

Starting at the beginning, before you buy a lead generation business, you should first look at a few details before making the ultimate decision to acquire the asset.

It is the buyer’s responsibility to perform their own due diligence on any business that goes live on our marketplace. While our vetting team does an amazing job reviewing the financials and giving a general overview of the business, performing due diligence is still the buyer’s key responsibility.

A few things to focus on while performing due diligence is to make sure that the niche you’re targeting offers plenty of growth potential. The asset should cover a broad range of services (like Upwork providing leads to its clients for more than just one skill set). Look at the marketing campaigns previously set up by the previous owner to locate any hidden Facebook ad potential should this opportunity not have already been explored.

Some interest in or knowledge about the niche you’re attempting to gain leads for would also be beneficial. Having experience in the business’ niche categories will not only help you think of new ways to reach your target audience with organic content but also give you firsthand experience in knowing their biggest pain points. This will be especially helpful when planning your ad campaign strategy.

A buyer should also be sure that the traffic coming to the business is extremely targeted for the best chance at gaining a conversion. If the offer doesn’t exist in the area that the traffic is coming from, that traffic is worthless, and this red flag should be noted. Many lead generation businesses rely on local and hyperlocal contexts, which is one of the great benefits of targeting local searches, as the competition is going to be less fierce than if you were building a normal affiliate website, for example.

Check other important metrics, such as the assets’ conversion rates, bounce rates, and average session duration, while performing your due diligence. Diving into these metrics may uncover easy wins, such as the potential to perform conversion rate optimization (CRO), to gain a timely ROI. The bounce rate may help dictate whether more content is needed to keep your traffic on the site longer, and the session duration can show you how long traffic is engaging with the site’s content.

If you’ve come to this post looking to fast-track the start-up process and purchase an established lead generation business, we can also help you.

How Do We Value a Lead Generation Business?

Once you have a better understanding of the key performance indicators (KPIs) that are most important for this model, we can start to build a foundation for the assets’ value compared to similar businesses we’ve sold on our marketplace in the past.

As the largest curated marketplace for online businesses with the most deal flow in the industry, we have the data and experience to give every customer the best possible valuation for their business.

The general formula we use is as follows: sales price = monthly net profit × multiple + discounted assets (if any) + wholesale inventory (if any). A more simplified equation we use is the following:

Net monthly profit is usually determined by looking at the average revenue for 3 to 12 months, subtracting any costs (cost of goods, marketing/advertising, hosting, virtual assistants, content, etc.) and dividing by three.

In some instances in which the business is seasonal or has been around for a perennial amount of time, we’ll use a 12-month average instead to reflect seasonality, which is clearly mentioned in every listing on our marketplace. The greater the number of months we can use to calculate the average, the larger the multiple will usually be (along with other proprietary factors we consider).

To determine the best possible valuation for any lead generation business submitted to our marketplace, we first give a typical valuation multiple. This multiple is backed by hard sales data and offers the seller the best possible multiple/valuation to provide the shortest acquisition time. We also give an absolute valuation of the business. This is more theoretical and offers the seller the option to list at a range higher than typical if they wish to hold out for a bigger offer or at a range lower than the typical for a seller wanting to make a quick sale.

This can be explained in more detail by one of our business analysts when you submit your business, but for now, all you need to know is that we give you a valuation range depending on your exit goals.

A few more factors that we consider when determining what your listing multiple will include are how long your business has been around and the amount of new and existing traffic your lead generation business receives, among other important KPIs that we will cover in the next section.

How to Sell a Lead Generation Business

You may be familiar with the fact that you can sell leads to clients on a retainer or per lead basis, but not many lead generation business owners know that they could sell their asset for a huge capital gain. Put in the extra effort to grow a large social media following that funnels traffic into your email marketing funnels and you have a desirable lead gen asset plenty of investors want.

When it comes to finding the best place to sell your lead generation business, we offer the biggest pool of buyers and the largest curated marketplace (which you can see from our scoreboard) in the digital asset brokerage space. Before you can list your site for sale on our marketplace, you’ll need to have some important details ready that most buyers will look for at the start of their due diligence process. These details often include the following:

  • Google analytics data (two years or more preferred)
  • Customer acquisition cost
  • Cost per acquisition
  • Conversion rate
  • Traffic to lead ratio
  • Profit and losses sheets
  • Return on ad spend (if any)

Before you begin preparing your analytics and financial details for potential buyers to review, we recommend having automated systems in place to make the daily management of your business as passive as possible. The more you can automate on the backend now, the better chance you’ll have at receiving your full asking price sooner once your business goes live.

Another way you can capitalize on a timely acquisition is to offer training support for the new owner. We have seen firsthand how offering additional support during the transition period can speed the entire deal process up. When a buyer knows that you’re willing to guide them along the way until they feel comfortable, they’ll be more relaxed in moving the deal process faster along.

Knowing When to Sell Your Lead Generation Business

Whatever your lead generation strategy might be, applying what you’ve learned in this article to your business model can help mitigate the time required to reach your exit planning goals (set up a call with a business advisor to help guide you through this process).

Knowing which KPIs are most important to increasing your multiple will also help you determine whether now is the best time to exit your business. If you discovered a few KPIs that are not performing as well after reading this, now is your opportunity to improve these metrics to gain a better multiple when you make your exit.

If you’ve been optimizing a lead generation business like the ones mentioned in this article and looking to gain a large chunk of capital for your next passion project, submit your site to receive a more custom valuation tailored to your exit planning goals.

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