We can all agree a fundamental piece to sustaining a profitable business is building a large database, but more importantly a high-quality database.

The reality of this becomes apparent when the client life cycle nears its end and insurance is no longer needed or when AUM begins to be drawn down thus reducing commissions earned.  Either way, both scenarios result with you taking a haircut on available revenue streams and potentially experiencing financial strains.

That said, the question remains which method of building a database is best?

In this article we will evaluate the pros and cons of buying leads vs prospecting through paid advertising, and hopefully draw upon a conclusion that helps you in making an informed decision on what is best suited for your business.

Before we begin let’s first consider lead quality.

Lead Quality

When evaluating your database and choosing the method in which you plan to build it, it’s important to consider the quality of data you intend on building.  Does the term “Garbage in, Garbage Out” sound familiar? We don’t want that.

If you are buying leads, you had better be confident in the source that is supplying them.  If you are self-prospecting, you should be sure that your message and demographic targeting is aligned with your ideal client.

Let’s consider these three pros and cons of buying leads and how it may or may not affect the quality of your database and the ability to successfully convert them into clients.

Buying Leads – Pros

Easily Quantifiable:

The expense is easily measured – You pay a set amount and receive a fixed number of leads.  This removes all elements of ambiguity on whether you’re getting what you paid for.

Time Efficiency:

Buying leads is like having the convenience of turning on the light switch.  It’s perfect for businesses that have either delayed in prospecting and need data fast or simply prefer the convenience of having something on-demand.

Pre-Qualification:

Depending on what you’re willing to spend you do have a bit of control over the quality of lead being purchased.  Some lead-for-sale programs market their services as “qualified leads” which they speak to and collect information on before passing them off to you. While others are better classified as raw-data providers which is basically buying an email list or possibly leads that have been farmed out to multiple businesses.  The quality level will determine the number of leads you receive at a given price.

Buying Leads – Cons

Lack of Consumer Awareness:

In most cases when buying leads, the consumer doesn’t have any idea of who you are, what your reputation may be, or what level of experience you have.  This makes for an awkward start to a relationship.

Additionally, if you don’t have proper lead nurture processes in place to familiarize the lead with your business, you will experience a more difficult process when converting leads to clients.

Spam Filters:

If email is part of your marketing process, which it should be, then leads that have not previously opened, engaged, or expect to receive your email are likely to be blocked by spam filters.  This is especially true in the financial services industry as inbox filters are more sensitive to not only financial key terms found within the email but the sending domain itself.

Quality = Increased Cost:

If your plan is to buy quality over quantity, then there is a price to be paid.  Depending on the provider and the qualification process, buying “qualified” leads can easily cost $300 or more per lead.  This can add up quick, so your closing percentage had better be good!

Now let’s look at four pros and three cons of paid prospecting.

Paid Prospecting – Pros

Increased Credibility:

Opposite from buying leads, a paid prospecting campaign generally involves providing some type of value-added offer or “lead magnet” that displays your branding and company information throughout the consumer experience.

This increase in brand presence ultimately correlates with and creates for greater levels of trust and credibility with the consumer, resulting in fewer barriers though out the sales process.

Engagement Data:

When running paid campaigns, most social media ad platforms collect engagement data.  Whether it’s a click, download, comment, or emoji response you can build data sets from these engagements.

So, while you are generating leads and collecting tangible data (Name, Phone, Email, Address) you’re simultaneously building an intangible database of engagements which can be leveraged for future branding and or remarketing activities.

Greater Brand Recognition:

Branding is one of those topics that is hard to quantify the cost vs return as there isn’t a direct line of correlation.  However, it is equally difficult to argue that brand recognition isn’t advantageous to your business.

Understanding that, when running organic prospecting campaigns, you are essentially getting a 2 for 1 return on investment.  Not only are you accomplishing the goal of building a database, you’re also additionally boosting company brand recognition, which is of greater value than many will admit.

Cost Per Lead:

When it’s all said in done, paid prospecting may run you an average cost per lead anywhere between $30 and $55 per lead.  This includes ad spend and management of the entire campaign.  Once you multiply that out, you have the potential to generate a far greater volume of leads when compared to other options.

Paid Prospecting – Cons

Undefined Return:

When working with a paid prospecting service that has proven programs, you usually have a rough idea of what your ROI will be.  That said, every marketing campaign has its good and bad days.  Opposite of buying leads, organic lead prospecting requires shelling out the funds with no guarantee on the results.

Requires Commitment:

When running paid campaigns, the inflow of leads is not instant.  You may get 3 today 5 tomorrow then ZERO for the next day.  This is a Con for individuals who want to rush the process rather than trusting the process.

Unqualified:

I classify leads produced on a standard lead gen campaign as “unqualified – warm leads” as most aren’t expecting a sales call after downloading a guidebook or “lead magnet” offer.

When performing paid prospecting you should anticipate having to nurture the leads through various touch point processes to better qualify them.   That said, leads generated off from processes such as webinars or events I classify as “qualified – hot leads” as these usually require higher levels of engagement on the consumer’s part.

Conclusion

In an environment driven by lightning-fast internet speeds, cutting edge technology and increasing competition, we as business professionals, our internal operations, and our good intentions, often become eclipsed by the desire for instant gratification and the idea that lead generation should become not only more efficient but less expensive.  Hence the thought process of buying leads in the first place.  After all, buying leads in theory does check all these behavioral or operational boxes.

However, let’s consider the prospective of the consumer and the decision-making process.  More than 2/3 of leads on any lead strategy are not ready to have a sales conversation and are likely just getting familiar with what it is that they may need.

The other 1/3 may have a general idea of what they need but haven’t found the person that they feel comfortable doing business with yet.  After all, most business dealings, especially financial dealings, involve a high degree of trust and confidence from the consumer.

It’s this rational that I believe paid prospecting is the favorable way of generating a high-quality database.  When comparing the pros vs cons between the two methods I value the consumer experience higher than the short-sited methods that buying leads present.  Additionally, I see more intangible benefits to be leveraged with paid prospecting when compared to one off processes of buying leads.

While both may work, I prefer and recommend the latter.

What are your thoughts, which do prefer or believe is more impactful when building long-term high-quality databases?