In this podcast episode, host Dean Denny, discusses the misconception of pursuing cheap leads for business growth. He argues that cheap leads often result in low-quality leads, negatively impacting a company’s direct response advertising efforts and brand reputation. He emphasizes that conversion rates and profitability suffer when focusing on cheap leads.
Instead, Dean suggests a different approach: focusing on increasing the lifetime value of customers and being willing to spend more to acquire high-quality customers. By optimizing the back end of the business and increasing revenue and profits, companies can dominate their industry. The key takeaway is that “he who can spend the most to acquire a customer wins.”
Here’s what you will learn:
- Quality over quantity: Prioritize acquiring high-quality customers rather than chasing cheap leads.
- Lifetime value of customers: Focus on increasing customer retention and loyalty to boost profitability.
- Strategic customer acquisition: View customer acquisition as a long-term investment rather than a short-term expense.
- Optimizing the back end: Improve customer service and product offerings to drive revenue and profits.
- Brand reputation matters: Avoid pursuing cheap leads that could harm your brand reputation and long-term success.
[00:01:40] – Avoid cheap leads: Will ruin your business.
[00:05:07] – Cheap leads can ruin conversion rates.
[00:07:33] – “Spend the most, win the customer”
[00:12:05] – Maximize customer lifetime value.
[00:13:45] – Cheap leads: bad reputation, bad conversions.
[00:14:51] – “He who spends most, wins.”
Hey, everyone. Welcome to open source growth. The leading destination for SaaS growth marketing. I am your host Dean, Denny founder, and director of Owendenny digital, and oh wow. I am excited to speak with you today about this. Unique phenomenon, which we all fall into. Believe it or not. If you’re listening to this podcast today, I’m sure you went through a stage.
Or you may still be in that stage where you pursued cheap leads, man. For every time I heard we need to reduce our cost per acquisition, or we need to reduce our cost per marketing, qualified lead, or sales qualified lead. Like the cost of advertising is too expensive. Blahdy, blahdy, blah. I heard.
And received a dollar. Every time I heard one of those statements, I would be an exceptionally wealthy man. Especially in the field and endeavor. That I work in as you know, we run Owendenny digital, I am the founder. And we help SaaS companies like yours, blow up online through the latest and greatest in direct response advertising, PPC management, social media ads.
Marketing strategy, fractional CMO services or whatever. But. This whole concept of cheap leads. It will totally suffocate your business. Growth. See, believe it or not. Cheap leads. I would argue, do more harm than good. In your entire business. Because cheap leads often lead to low quality leads and with cheap leads. There are four main reasons why you need to avoid the seducing thought that cheap leads are good for your business, and they will help you grow your business. It’s completely wrong. It’s completely cactus because it actually ruins your business longterm.
If your business is geared to only pursue the lowest, cheapest lead, this is what generally happens. Four things. Number one. Your direct response advertising efforts are driven to generate heaps of low quality leads. Now, when the lead gets… lead cost generally goes down that often means that the quality of the lead is getting worse. It doesn’t matter whether it’s a sales qualified lead or a marketing qualified lead. It gets worse and worse and worse. Now, I don’t know about you, but whenever someone asks me, Hey, do you want to purchase an email list? So we can go about canvassing, a whole heap of customers I’ve run in the opposite direction. And at the same goes for, you know, new emerging platforms where there’s low targeted.
It’s like there’s bad targeting options or you know, we’re running Google display ads at the top of funnel. Like these people, we don’t know where they’re coming from and all that sort of stuff. Like if you’re pursuing look cheaper and cheaper and leads, the quality is going to get worse and worse.
And. Let me ask you this. Do you have a sales team? If you do have a sales team, or if you are the person taking sales calls? Let me ask you this. If you generate yourself a whole heap of cheap leads that are low quality, and then you’re asked to make a whole heap of phone calls to see whether or not these people want your services. First things first, maybe they may not even be interested in your product. They might just be kicking the can and seeing whether or not.
Well, the kicking, the tires. And see whether or not you can help them. Number two, you may just not even want to chase the leads because they’re all crap. Instead of focusing on your valuable customers. Like you wouldn’t want to go about chasing all these. Crappy leads, whether they’re marketing qualified or sales qualified, doesn’t even really matter. So, you know, if you’re chasing cheap leads, the quality is going to go down.
That’s then talk about number two. If the demand generation team is focusing on generating cheaper and cheaper leads, you will succumb to negative impact strategies. That may influence your brand’s reputation. So what I mean by this is that if you have to use aggressive or spammy tactics or, you know, over-hyped headlines and clickbait you know, strategies in order to get people to landing pages or get them to sign up for lead magnets or get them into a sales call.
You may be perceived as unprofessional or totally unethical you. Don’t what we do here at Owendenny digital is exceptionally white hat. Ethical marketing. And if you are starting to do crazy stuff like this, it will damage your brand’s image and reputation in the long run. And. My gosh, it will make it so much more difficult to attract high quality leads and customers.
For you, especially as you grow and you grow and you grow. You know, As Warren Buffett says, I think it was Warren buffet. Anyway. He said that, you know you know, it takes a lifetime to build and only a moment to destroy. So, you know, we make sure you look at what you’re doing with your lead generation efforts. If you’re getting on the side of cheap chintzy, hype-y false advertising, you name it, whatever. And that’s purely driven by you know, low quality or low cost lead targets. You’ve got a real problem there. Like. You got to get you going to stop this. This is not good. So what happens when you have a low quality lead, which is cheap, that’s ruining your brand’s reputation. I can guarantee you that your conversion rates are going to drop.
Your conversion rate from marketing qualified lead. To booking a sales appointment is going to drop. And the number of people who would be sales, qualified leads, and then turning into real deals, that’s going to drop too. So even if you are able to acquire a large volume of leads, your conversion rates will get worse and worse over time because they may not even be looking to, you know, use your product or service in the first place.
And they may not even have the budget to purchase. So. You know, if your sales qualified lead criteria is only, you know, name, email phone number and location, instead of, you know, how much do you earn? What are your problems? What are you trying to address, et cetera, et cetera. If you’re not getting that information on the front end with your sales qualified lead. Yeah, your cost of sales qualified lead will drop, but your lead quality will diminish too. And it’s going to make it so much harder for your sales team to do anything contextual with its marketing efforts to support that person’s purchase and the customer journey. If you know what I’m saying. So. Again, chasing these cheap leads. It will suffocate you.
And finally, this is the one where the best businesses get it right. And the worst businesses completely cocked this up. Low quality, low cost cheap leads result in unprofitable customer relationships. So you, if you pursue cheap leads, It generally results in customers who are simply not profitable.
Cheap leads, discounts promotions to attract these leads. These people will generally, as a rule of thumb, always be a pain in the backside to deal with. You will be sacrificing profitability in the short term to acquire them. And then you’ll be over servicing them to deliver on your promise entire time.
There’ll be less loyal, more price sensitive, and we’ll make it so much more difficult for you to maintain healthy profit margins in your company over time. See there is a better way here guys. And thankfully you’ve listened so far because I want to show you a better way. Because there’s this guy called Dan Kennedy and he’s considered a God in our circles.
And Dan Kennedy came up with this phenomenal insight. And it’s this. He who can spend the most to acquire a customer wins. Now, it sounds like a really obscure, you know, Esoteric statement. But think of it this way. Picked yourself as a pizza joint. And just say, you know, that the customer lifetime value per year of a customer that you can acquire is say $300 to say, if you’re operating in Melbourne, Australia, you’ve got a pizza joint and your average customer sends $300 a year with you. That means. Okay, cool. For every customer I acquire. They’re going to generate $300 worth of revenue. Okay. Cool. And just say your pizza shop a and your fighting for customers in your neighborhood. And just say, you’ve got a budget.
To acquire customers. For say a hundred dollars. So for every hundred dollars you spent on advertising, you want to get one customer. Great. So that means, you know, if you spend a hundred dollars on advertising over the 12 month period, you’ve tripled your money in terms of revenue. Cool. So. If you can spend say a hundred dollars to acquire a customer.
Whenever, you know, the lead costs. You know, drop down. You can acquire more customers because you’re willing to spend a hundred dollars on a customer. But if the cost of advertising increases and you can’t spend a hundred, you can’t spend a hundred dollars and get a customer. You can only get customers. If you spend 150, that means your media efficiency is going to drop.
And you’re going to acquire less customers. But let’s have a think about it here. Now you understand the concept. Okay. If the cost to acquire a customer increases, but I’m willing to spend a hundred. That’s fantastic. Just say there’s no competition in your area and you can acquire. Well, you can, you’re competing with say fish and chip shops. You’re competing with the guy with the noodle box. You’re competing with KFC McDonald’s, whatever.
Just say, hypothetically, you go in there and the cost of acquire a customer in a certain week, maybe $20 and you’re willing to spend a hundred dollars. So what’s going to happen right here. Is that you’re going to be able to acquire five customers for every one customer that you normally. I used to paying for, and it’s all great.
But then. Another pizza shop may come in town. And then there’ll be like, hang on a second. This guy is spending. $20 to acquire a customer. I’ll spend, I’ll spend 125. So all of a sudden you’re willing to spend a hundred dollars per customer. Pizza shop B. Your competition starts to run ads and is willing to spend $125 per customer.
And just say the cost of acquiring a customer is what you set. How many customers do you acquire when you’re only spending a hundred and your pizza shop B is spending $125. Here’s the fat answer. Zero. And, you know, why that’s the case? Because pizza shop B is willing to spend as much as they possibly can or $25 more to acquire that same customer. And the only way you can get there is by matching it.
Now you’re probably asking on the podcast right now. Hang on a second. Why do I want to be spending so much money on leads and acquiring a customer? And then not only why do I need to keep on spending money here? If, if I can’t compete well, then how do I compete? Well, here’s the funny thing. The best business, the best brands in the business.
Your stripes, your, your Uber’s, your you know, your Facebooks, your like all those big tech players. These guys don’t look at the cost to acquire a customer. They look at the lifetime value of a customer, and then they optimize the living daylights out of the back end. See. The beauty of having a SaaS company or a business that has any form of monthly recurring revenue.
In its products and services, IE and agency is that you need to be doing all your advertising and all your internal work. With the goal of increasing your customer lifetime value. See, we have some clients that have been with us for five years and they’re worth a lot of money to us. And we also have some customers which are only here for short seasons, where they may only do a small three month campaign, a six month or 12 month campaign.
Now. Can you see what I’m trying to get to here? That these customers all have different lifetime values. But what the goal of being internally inside of your business is to actually increase your lifetime value. What can you upsell them? How can you bring them back into the shop? How can you sell them three pieces when they were only planning on buying two, et cetera, et cetera. Because what that enables you to do is increase the amount of revenue your businesses generating.
And if you can increase the number, the amount of revenue, your businesses generating, you’re likely to increase the profits. If you increase the profits, you’re more likely giving yourself more fat. To spend more money to acquire customers.
Can you see how this works?
He who can spend the most to acquire a customer wins. And if you optimize the backend of your business, You can be unstoppable. In your vertical.
Pretty groovy. Huh? Guys. That’s today’s episode. See chasing cheap leads will suffocate your business growth. Here are the reasons why. It doesn’t matter whether you’re a SaaS company, doesn’t matter whether you’re a e-commerce brand. It doesn’t matter whether you’re a managed services provider in cybersecurity.
A fish & chip shop, a junk food restaurant. A sushi train, like. It simply does not matter. Because at the end of the day, Cheap leads and the tailspin you’ll send yourself into is you’ll get the low quality leads. They’ll impact your brand reputation that would destroy. They obliterate your conversion rates. So your salespeople and everyone’s unmotivated.
And you’ll generate a whole heap of awful customers that are simply not profitable. You drive your sales team mad. You drive your management mad. Your investors will get frustrated with you. People will be pulling out left, right and center. Your brand’s reputation will be very hard to repair. But if you do things right.
And you optimize the lifetime value of your customer. Recognizing that the only way you can dominate industry is by willing to beat. Is to be by willing is to be willing, to spend more than your competitors to acquire. That great customer. That is how you win. So guys. If you can remember anything from today’s podcast.
Here’s the golden sentence. He who can spend the most to acquire a customer wins and that’s Dan Kennedy, that’s not me. Guys, thank you so much for tuning in today. This is open-source growth. If you got something from today, please share this with a friend or a colleague, or do one better, do us a solid and subscribe to this podcast. Every subscriber, every listen, I see every single one of these comments. And if you do like what we do here at Owendenny digital, please jump onto our website or jump into the show notes.
You can book a time to speak with me. To see how we can develop a very similar system. Like we’ve discussed in today’s episode. And a system which is designed to increase your customer lifetime value whilst acquiring very high quality leads inside of your business, that’ll enable your business to truly grow.
And not be suffocated by cheap lead targets. It’s been real. Thank you so much for tuning in. God bless, stay safe. And till next time. Bye-bye
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