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There are several viable business models lead generation agencies can use, each with its own pros and cons. Choosing the right business model is an important step, as it’s going to affect your processes, profitability, and scalability.
In this guide, we’ll look at some of the most popular business models, looking at their pros and cons, and discussing which situation works for each business model.
First Steps to Determining Your Lead Generation Agency’s Business Model
Choosing the Right Business Model for Your Lead Generation Agency
Let’s jump straight in.
First Steps to Determining Your Lead Generation Agency’s Business Model
Lead generation businesses sell qualified leads to buyers who want to turn those leads into customers. No matter the business model you choose to go with, your business’s objective will stay the same.
In most cases, the lead generation agency model relies on a pay-per-lead business model where you charge clients a set fee for every single lead you produce.
But, that’s not the only option available to you.
So what are your options outside of the popular pay-per-lead model? Here are some we’re going to look at:
Retainer Model
Revenue Share Model
Percentage of Ad Spend
These models are all good options if you set clear contracts.
We’ll look at all of them in detail below.
Are Lead Generation Businesses Profitable?
It’s forecasted that companies will be spending $3.2 billion on digital lead generation by 2023. It’s safe to say that if you offer a service that’s going to help companies generate leads at a fair price for their industry, you’ll be able to find companies willing to work with you.
If you have the right skillset and pick the business model that works best for your agency, you will have an excellent shot at growing your agency profitably.
The model you choose will impact a variety of factors, including your profit margins, so it’s not a decision you should make lightly.
What Business Model do Clients Prefer?
While we can't say exactly what every client in your industry is looking for, there are some things we can shed light on with regard to their preferences.
The reality? The vast majority of clients don’t care about your business model.
What do they care about? The ROI that’s in it for them.
If you have demonstrable results, most clients will be happy to work with you, no matter which business model you use to bill them.
It’s also important that the clients you’re hoping to work with are a good fit for your lead generation services. If you target small local businesses without a lead generation budget, no business model will convince them.
On the other hand, if you work with profitable or funded companies who have money to spend on client acquisition and lead generation, they’ll be more open to different business models, as long as you show them you’re going to help their business grow.
In this next section, we’ll do a deep dive into the various business models for lead generation agencies and assess them to provide you with a clear idea of what to expect from each.
4 Proven Business Models for Lead Generation Agencies
1. The Pay-Per-Lead Model
The pay-per-lead agency model works by charging a set fee per lead you generate for a client.
Typically, in this model, you would assume the cost it takes to come up with a single lead and then charge your client accordingly, so you make a profit.
For example, say you calculate that each lead costs you $150 to produce (in time, expenses, ad spend, or other costs). You’ll then mark up the lead and charge your client — for example, $250 per lead. The exact figures will depend on your industry and how qualified your leads are.
With this model, you can either go all-in on generating leads for a small client base and grow with them. As you generate high-quality leads for them, their business will grow, and you’ll grow with them as a trusted sales partner. Or, you can cast a wide net offering your services to multiple businesses, selling each of them a low volume of high-quality leads per month.
Another twist on this business model is that you can offer leads to clients with a clause stating that if they either don’t want the lead, don’t follow up, or don’t close it within a certain time frame (one to two weeks is usually enough), you can sell the lead to other buyers.
As long as you’re transparent with clients about how your process works, most will be fine with it. You can then also offer exclusivity options, and increase your cost-per-lead (CPL) accordingly.
As such, the pay-per-lead model can be flexible to your needs and has a high potential profit margin.
To get the most out of this business model, it’s a good idea to reinforce your reputation with social proof. Demonstrating customer satisfaction through the use of case studies can be an effective way to break down the barrier to entry, and strike up lucrative pay-per-lead deals with new clients.
Pros:
Relatively risk-free, as long as the leads you deliver are high-quality.
Clients like pay-per-lead as they don’t have to pay if you don’t deliver results.
With this model, the potential for quick scalability is higher than with the others, as the more leads you produce, the more revenue you make.
Cons:
If you don’t have a reliable funnel that lands you high-quality leads for your clients, then you may find that you have a hard time maintaining the relationship.
Clients may demand proof that your lead generation service works to avoid them wasting their time engaging with you before you can start work.
2. The Fixed Retainer Model
The retainer model is another viable business model for lead generation agencies.
This model brings you revenue through a fixed retainer contract you set up with your clients, and the payment could be done monthly, quarterly, or yearly.
For example, you’ll agree that a client pays you $2500 per month and you’ll deliver them 10 - 15 leads at the end of the month.
When creating your retainer, make sure to accurately account for the time involved in sourcing your leads.
The main benefit of the retainer model is that you can accurately predict your agency’s revenue from month-to-month, and predict how much workload you’ll need to manage. You can then hire new team members, or adjust your prospecting efforts as needed if you’re above or under your agency capacity.
One of the biggest downsides, however, is that if you end up spending more time on a particular account one month than planned, or the industry cost-per-lead significantly increases due to causes outside of your control, you can end up cutting into your profit margins.
In addition, your potential clients can be wary of signing a large retainer contract without knowing how your agency operates. As a business owner, they don’t want to invest a sizable sum of money before knowing if you can deliver on your promises.
To get around this roadblock, make sure to show social proof in the form of case studies and testimonials on your website and reference them when you engage with prospects.
Pros:
Stable and predictable revenue is a huge plus.
A good model if you want to commit to a long-term relationship with a client. For the client, the benefit is that they can pay a fixed amount on a regular basis but don’t need to commit resources to train up a full-time employee.
Small business owners often prefer PPL to retainers as the initial cost is lower.
Agencies that work with clients on a retainer basis generally have more time to pitch to new clients, since their current workload is predictable. This is unlike the pay-per-lead model in which it can be hard to assess how much work you have on your plate, which makes managing your time challenging.
Cons:
With so many other agencies offering retainer contracts to clients, you need to make sure you stand out, which means you need to demonstrate your worth in terms of skills and industry knowledge.
You’re paid the same even if you spend more time or money on a client account.
3. The Revenue Share Model
As you might imagine, the revenue share model involves splitting income generated from the leads between your agency and the client.
As such, it should in theory compensate each party for their contribution. Similar to affiliate marketing, this business model won’t be an even 50/50 split. But, your agency will receive a small cut of the overall profits, which can turn into a recurring payment if your client has a subscription-based business.
Most agencies will agree on a 5-20% revenue split, and the figure will depend on the industry you’re generating leads for.
This model is good for both new and established agencies. If you’re new, it’s easier to find clients willing to try your services, because the prerequisite to paying you is that you bring them a customer.
For the same reasons, it’s popular for local lead generation where smaller companies may not want to pay for leads upfront but will still be happy to split the profits if you can generate leads for them.
For established agencies with a proven lead generation program, a revenue share model can be an excellent way to secure higher payments than other models allow if your client is in an industry involving high average contract values.
Pros:
You share in the upside if you generate high-quality leads for your clients.
Your client will be happy to agree, as they only pay you if they get new business.
Each party is fairly compensated for the work, so nobody should feel hard done by in this arrangement provided both parties can deliver.
Cons:
This whole model hinges on the ability of your agency to find high-quality sales leads, and of your clients to close them. If one party fails to follow through, both parties suffer.
4. The Percentage of Ad Spend Model
If you’re a paid ads expert, you can try the percentage of ad spend model. With this model, you’re relying on running paid ads for your clients, except they’re the ones who put the money up for this expense, and you’ll receive a cut of that in return for managing the campaigns, and generating leads from them.
You would then take a percentage of this ad spend as a commission, somewhere in the region of 10-20%.
This model works best if your agency has digital marketing and paid ads experience already.
Since you’re spending your client’s money, though, there is a responsibility on your agency to deliver concrete results in terms of ad performance.
In the beginning, this means alleviating your client’s concerns by assuring them of your process, laying out your lead generation strategy, showing past results, or offering a guarantee.
Pros:
Clients can dip their toes in the water with a small budget at first, so you have an opportunity to prove that you can deliver.
Over time your revenue can increase as the client feels comfortable investing more money in ads.
You can also negotiate a higher percentage over time if the nature of the work you do changes or becomes more complex.
You can charge a monthly retainer fee on top of the percentage you receive, which will require more work on your end but provide you with a regular supplemental income stream.
Cons:
If you’re not careful, clients might think that you’re trying to increase your earnings out of the relationship without contributing to their standards.
You’ll have to communicate clearly with clients using this model, since it’s easy for them to think you’re not providing a decent return on their investment.
Choosing the Right Business Model for Your Lead Generation Agency
There’s no business model that’s right for every agency.
You’ll need to do some rough maths to work out which one will be best for you based on how many leads you expect to generate for clients, what your operating costs are, and your overall goals for your agency.
For most agencies, a pay-per-lead model is an excellent starting point. You can easily work out how much you need to charge clients per lead to ensure your profit margin is high enough to support your growth. When you’ve been working with clients for a longer time period, you can convert your Pay Per Lead agreements into retainer agreements if it makes sense for more reliable cash flow.
The revenue share and percentage of ad spend models can also work well, but they’re arguably harder to do correctly and often require more back-and-forth with your potential lead to confirm details before you can get started.
Powering Your Lead Generation Campaigns with Cold Email
One of the most powerful ways to generate new leads for both your agency and your clients is cold email. You’re not relying on social media platforms showing your ads, or spending weeks ranking your clients’ websites on page #1 for hard-to-rank-for keywords.
A personalized cold email gives you access to a decision-makers inbox. If your email template resonates with a pain point your lead has, it’s the perfect way to start a conversation.
The best way to manage your cold email campaigns? Using a cold email platform like QuickMail.
Our platform is designed for lead generation agencies who want to send personalized emails at scale.
1. Add as Many Inboxes as You Need
Most cold email tools limit how many seats you can have. As we designed ours for agencies, we made sure you can add as many inboxes as you need to manage your outreach campaigns.
You can then automatically rotate your inboxes to ensure your sending schedule from each is natural, reducing the chance of any single inbox being affected by deliverability problems.
You can track how many emails are being sent from each inbox per day, and add or remove inboxes from campaigns at any time.
2. Always Land in the Inbox with Deliverability Tools
As your agency grows, you’ll be sending hundreds of cold emails per week as part of your lead generation process. If an ESP like Google decides to start sending your emails to spam, it’s going to cause big problems.
To make sure this never happens, QuickMail has deliverability tools built-in, and has a native integration with MailFlow, which is a free email warm-up tool.
MailFlow's email warm-up tool will generate authentic engagement from your account, sending and replying to emails, and removing your outbound emails from spam if they land there.
Over time, your inbox will warm up, and ESPs will trust you as a sender. You can send your outreach campaigns with confidence and be able to focus on replying to your interested prospects.
You can also track your performance with MailFlow's deliverability reports.
Every week, MailFlow will test how your emails are being received by the major inbox providers. If your emails are landing in Spam, you’ll see it, and be able to slow down your campaigns and spend more time warming up your inbox.
3. Track Performance of Every Campaign
Your lead generation is all about results. You can track every cold email metric that matters to you and your team in your dashboard, from open rate, to reply rate, to unsubscribe rate. You can also A/B test emails and copy to find the variants that resonate most with your clients’ leads.
This makes it easy to build reports for clients, track the campaigns and email templates that are getting results, and continue to optimize.
You can decide if Quickmail is the right cold email tool for your agency by starting your free trial.
Wrapping Up
Choosing the right lead gen agency model can be the difference between success and failure. The right business model will ensure your business brings in enough revenue to cover your costs and grow. The wrong one could lead to slim profit margins and an inability to hire and pay new team members.
Whichever business model you choose, make sure to always deliver on your promises to clients.
