Does It Pay to Buy Online Leads?

An advocate and a skeptic share their personal experiences and explain why they do and why they do not engage in this marketing strategy.

May 9, 2013

Why I Do.

I generate hundreds of leads each month for my seven sales associates from my company’s 12 Web sites. My primary focus is my main site, I require consumers to register after they’ve viewed a certain number of pages of listing information or if they’d like to inquire about a property. I get at least several hundred registrations per month, which my sales associates and I follow up on. That’s where I get the majority of my Internet leads.

I also do pay-per-click campaigns on Yahoo and Google to get exposure with certain search terms, and I funnel all those PPC campaign leads through my main Web site. PPC campaigns aren’t a main part of my marketing, but people who are serious about the organic search engine ranking of their Web sites usually also advertise through PPC campaigns because that increases both your Web exposure and the chance people will visit your site.

It’s very expensive to purchase online leads. I’ve paid as much as $4,000 per month, but today I spend about $500 monthly. I was part of the problem because I used to tell Google or Yahoo to just make me the highest bidder for a particular search term, like “Austin home search.” That just made the price go up and up, and then you start spending a ridiculous amount of money. I don’t do that anymore. Instead I focus more on my efforts to increase the rankings of my main Web site without PPC campaigns.

Though the campaigns can become expensive, I view purchasing online leads as high risk with the potential for some reward, though I wouldn’t call it high reward. If you’re spending around $1,000 per month on online leads, it takes only one decent-sized transaction to pay those costs back. However, as those costs add up, especially if you’re paying more than that, it begins to take several decent-sized deals to recoup your costs, and that really starts to weigh on you. Honestly, the cost of purchasing online leads is still higher for me than I’d like.

That’s why I’m in the midst of evaluating my return. I’ve spent a lot of money on PPC, and tracking it has been an ongoing trial-and-error process. But now I’ve got an expert working on a cost-benefit analysis of my PPC campaigns so I can learn what they’re costing me per lead and what my conversion ratio is. I’ve heard other brokers don’t do PPC campaigns at all anymore because they believe the benefit isn’t there.

Staying Competitive

We’re not quite there yet. I do feel it’s expensive, but until that analysis tells me otherwise, I still see enough value that I expect to continue purchasing online leads.

I’ll be honest: There’s a fear of letting go. There’s a part  of me that’s afraid to stop because I’m trying to increase the number of leads coming in as opposed to decreasing them. It’s important to me to continue the flow of leads at a consistent pace. If you slow those leads, you need to proportionally increase them through your work on your own Web site.

In addition, many of my competitors still market with PPC. Other firms in Austin are accumulating more leads than I am through these campaigns. One in particular is just killing it. So there’s a lot of potential out there online. It’s not so much that I feel I have to compete with them on PPC as it is that if they’re still doing PPC, maybe I should be, too.

Finally, buying leads is also a proactive, targeted strategy. We use it to target the most desirable communities in our area. The Barton Creek community happens to be next to my home, and it has high-dollar sales. One deal might pay back all the cost of my PPC campaign there. So I occasionally do targeted PPC campaigns with those and other search terms

The bottom line for me is that the flow of leads is something I don’t want to interrupt, and I’m still getting a positive return on my investment in both my Web site leads and PPC efforts. Could I save money? Probably. Should I get rid of things like PPC campaigns altogether? Maybe, but only if I can increase the leads I generate on my own Web site.

Why I Stopped.

My business partner and I used to spend about $2,500 a month buying online leads for our 10 sales associates. Today, however, we don’t spend a cent. We generate them ourselves, spending less money and getting more leads.

We started buying leads about 10 years ago through our local newspaper, The Seattle Times. When the paper went online, we became the headline sponsor for its real estate section. There was a button that said, “Interested in buying a home?” When consumers clicked it, we’d get that lead.

That always generated a lot of traffic. At the time, good tracking packages didn’t exist, and we hadn’t perfected an internal tracking system, so we didn’t have great analytics. But we knew we generally got a couple of transactions a month from that source. We started out spending about $1,000 a month and eventually got up to $2,500 purchasing those leads and others. If we did one or two transactions per month as a result, it paid for itself.

However, we began to question this expense and whether we had other options. We came to believe purchasing online leads was like running on a hamster wheel. Leads varied from somewhat reliable to absolutely useless depending on the company from which we bought them, and we knew they’d drop to zero the minute we stopped paying for them.

We realized we could invest half as much money every month and generate twice as many leads long-term by building the same platforms ourselves. Even better, our Web sites would have a long-term business impact that wouldn’t disappear without substantial new funding every month.

Today, we have about two dozen Web sites. Yet just two— and—generate most of our income. My advice to brokers: Don’t spread yourself thin trying to make a ton of sites highly productive. Web sites are a really crowded field. It’s all about focusing your best efforts on your primary site until you get to the top of the search engine rankings. Then be sure to have a team to handle the leads you generate.

Web Site–Focused

Also, don’t be afraid to invest in your own business. Many brokers and sales associates are happy to spend $2,000 a month on leads but afraid to spend $500 to set up a Web site. In our case, the up-front cost of creating one site was about what we’d spend on a month of leads, and we’ve spent about $25,000 creating all of our Web sites.

Today, we spend about $1,000 per month to generate 40 to 50 leads a day from our sites, a return about 10 times greater than when we purchased online leads. Our conversion rate is hard to compare because we used to have only two sales associates working online leads, and today we have 10, plus a telemarketer. However, even if we assume the conversion rate is flat and we’re converting at only a 1 percent rate (1–5 percent the generally accepted average), we’ve still significantly increased our return on investment.

We still have opportunities to add more traffic by purchasing pay-per-click advertising on search engines like Google, but it’s not necessary. What is necessary is a continued labor investment in our Web sites—blogging to maximize search engine optimization because without that, your visibility and online presence can slip away. But blogging is not just beneficial to generating leads; it’s also good for your business. It requires you to keep your ear to the ground and increase your knowledge of the market. You’re creating an identity online that doesn’t disappear because you’ve stopped purchasing online leads.

Overall, buying online leads is a stop-gap measure if you have to generate business immediately. In the long term, however, it’s shooting yourself in the foot. If Internet lead generators suddenly raise their prices dramatically—which they’ve done—you could lose your income source overnight. You have no control over the rules, the platform, or the pricing for online leads, and building a business on something you have no control over is a fundamentally flawed strategy. In addition, if you’re paying someone to provide you with Internet leads while you’re trying to generate them from your own Web sites, you’re financing the people you’re competing against online when it comes to search engine optimization. Ultimately, it’s smarter for brokers and agents to focus on investing in platforms that will generate long-term business themselves.

freelance writer

G.M. Filisko is a Chicago area freelance and former editor for REALTOR® Magazine.