Purchased Lists vs. Online Advertising: Which is best for marketing storage and data management products?

Posted: November 1, 2012 by David Lamont in Interesting Data, Lead Generation, Opinion, Promotions
Tags: , , , ,

It’s very unwise to pick just one promotional strategy and exclude all others, but it happens a lot among start-ups in the IT industry. Typically, the underlying problem is money. The firm has a very limited promotional budget so they bet it all on a single promotional strategy.

More often than not, inexperienced marketers at these cash-strapped start-ups purchase a list of prospects to email and call. After all, the list is affordable, email is almost free, and the sales team can start dialing on day one. From that same perspective, online advertising is ruled out because it is obviously expensive, it takes more time, and the number of callable contacts is expected to be relatively low.

However, choosing a purchased list over online advertising is invariably a bad bet.

Let’s look at some numbers:

  • Advertising: The more expensive pay-per-lead adverts average $60 per lead. However, while the cost-per-lead (CPL) is expensive, these contacts are leads insofar as they have requested one of your resources (e.g. a white paper). Such leads result in a “warm” contact list.
  • Purchased Lists: A contact on a list costs more or less $5, depending on the criteria chosen. The cost per contact is relatively low, but they haven’t taken any action to demonstrate even a passing interest in your offering. A purchased list is a “cold” list.
  • The cost of email is almost free. It’s usually not a material factor.

A typical click-through (action) rate for cold list is 0.05%. A click might result in a white paper download, a webinar registration, request for quote, or other action that the sales team considers actionable. However, a click-through rate of 0.05% means you need to send 200,000 emails to generate 100 clicks. Those 100 clicks cost $1-million at $5 per contact (of course the cost is lower when you amortize it over many campaigns, but to make the point we’ll leave it as is.)

A low click-through (action) rate for warm list is 1.5%. It can be much higher. Again, a click might result in a white paper download, a webinar registration, request for quote, or other action that the sales team considers actionable. A click-through rate of 1.5% means you need to send 6,667 emails to generate 100 clicks. Those 100 clicks cost ~$490,000 at $60 per contact (again, the cost is lower when you amortize it over many campaigns.)

The net result: Generating a desirable action from the $60 online advertising leads costs ~50% less than generating the same action from $5 purchased contacts because the response rates are significantly higher for warm lists.

Email clicks are easy to measure, but the lesson can be logically applied to other factors. While the cost of promoting using email may be close to free, the cost of promotion using a sales team is not. Because of the significant productivity difference, cost of a sales team employed to call a cold list will be higher than the cost of a sales team calling a warm list.

You can easily test this for yourself and generate numbers for your own business. Your numbers may be higher or lower, but you will inevitably learn that a warm list is considerably more valuable than a cold one.

This analysis assumes your firm has no ethical issues with emailing people who have not subscribed for your messages. Such unsolicited emails may not be SPAM from the legal sense, but they are usually considered SPAM by the recipients. It’s certainly possible that a portion of the 99.95% of email recipients who do not respond to your unsolicited emails will in fact remember your brand and make a decision to avoid it at all costs. As a result, every campaign has the potential to diminish your brand among the carefully chosen audience you wish to sell to.

How CEOs, CFOs and VCs Might Mitigate the Underlying Budget Problem

I get it. The marketing budget of many early-round start-ups won’t support much online advertising. However, that budget crisis is usually the result of an earlier decision to invest other things. Typically, CEOs at these firms invest 90% of their sales and marketing budget in staff alone. They usually start by adding salespeople, but don’t reserve enough cash for the marketing programs necessary to feed that team.

Soloed VPs can’t address this issue because the parameters of their world have already been set by the CEO and board. The result is a failure by marketing to deliver enough high quality leads to satisfy the needs of a relatively large sales team. However, the sales team also fails because they don’t have those leads. The CEO, CFO and VCs fail because of the lost time (multiplied by the company’s cash burn rate) and the destructive interdepartmental politics spawned by the imbalance between objectives and resources.

A more prudent approach is to recognize the fact that sales and marketing are interdependent, not independent. You must invest proportionally in both. You must also recognize that marketing takes time and money and it often precedes the success of the sales team.

About the Author

David X. Lamont is an accomplished marketer of IT products and a partner at Marketingsage, a PR and lead generation firm that specializes in marketing data storage, data management, and enterprise software products. He can be reached by email at blog [at] marketingsage.net. Fellow marketers and IT professionals are invited to join his network on LinkedIn and to subscribe to this blog (see sidebar).

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