Lead Generation VS Sales Conversion: What is The Difference

53% of marketers spend more than half their budget on lead generation.

Yet the average conversion rate across most industries is a feeble 2.5 percent. 

Clearly, there’s a gap between generating leads and closing sales.

In this post, we’ll show you what’s causing this gap. And just a heads-up, most business owners are actually paying to maintain this problem without knowing it.

Besides pointing out this money-waster, we’ll also highlight the key metric that really affects any business’s revenue. 

Focus on this one metric, and you could make more money, whether you’re a lead generator or a business owner.

Let’s dive in!

The Key Metric: Leads-to-Sales Conversion

Lead-to-sales conversion represents how many leads converted into paying customers. 

It is measured using the following formula:

(Number of Sales / Total Number of Leads) x 100

This formula shows what percentage of initial leads who progressed through the sales funnel, ultimately made a purchase. 

For example, if you generate 100 leads from a lead gen campaign — and 15 of these leads actually buy, then:

(15/100) x 100 = 15% 

You will have a lead-to-sale conversion rate of 15 percent.

Despite its importance and significance, it is often the weak point of many businesses that are working with lead gen agencies or external lead generators.

More accurately, it is often the point of conflict — which keeps both parties poor instead of serving its intended purpose and doing the exact opposite.

Let me illustrate this a bit.

Imagine you run a solar panel installation business, and you’ve struck a deal with a lead generation agency to pay them $10 per lead (using round numbers for ease – not a real price).

It’s a fixed pay-per-lead arrangement, which means both you and the lead gen know the price is set at $10. 

Money is a strong motivator here.

The lead gen’s strategy would be to maximize the number of leads and minimize their cost per acquisition to boost their earnings. 

For instance, they might aim to generate 100 leads a month at $4 each, making $6 per lead and totaling $600 instead of $500 at the end of the month.

While this fixed cost seems enticing, it can be deceiving in the long run. 

The 100 leads you receive may be of low quality and unlikely to convert.  You might need 300 to 400 of these for just 10 or 20 conversions.

As the lead-to-sale conversion drops due to poor quality, it can lead to conflicts between you and the lead generator, despite apparent cost savings.

Those cheap leads are no longer cheap!

You’ll have complaints;

⚠️ The leads are costing too much!

⚠️ The leads aren’t converting!

But the lead generator still might not be willing to address your complaints. 

They won’t be motivated to improve lead quality as their “fixed pay per lead” doesn’t justify the extra effort. 

Ultimately, the misalignment causes friction between you and the lead generation agency — leading to income loss on both sides.

The Culprit: Fixed Pay Per Lead Model

Above we saw, fixing a “cheap” price per lead often results in poor quality leads.

Or, more accurately, the lead generator is basically trying to give the client just enough quality leads to keep the contract!

But why does this happen? Will setting a price of $20 or even $50 per lead solve the problem?

Maybe. Maybe not. 

The fixed price per lead model doesn’t really address the “sales conversions” part of the equation.

How so?

Well, you’re paying the lead generator solely for the leads, and that’s exactly what they’re delivering.

Sure, initially, they might promise high-quality leads or you might agree on some lead scoring system to measure quality.

But you STILL can’t expect great results — because they’re NOT with you until the finish line — i.e., until conversion.

Sometimes, they might generate high-quality leads based on the agreed lead score system. 

Yet, you might still struggle to convert these leads. 

This could happen for a couple of reasons:

1. You have a faulty or complex sales process (and the expert lead gens are not there to identify issues)

2. The target audience you defined for the lead generation company doesn’t accurately represent your actual buyers.

So, you see, the root of a low leads-to-sales conversion rate is the fixed pay-per-lead model. 

It restricts the involvement of a lead generator in your business and limits their rewards tied to successful sales.

Before you head on to solving the problem you should be aware of another creative way to profit from non-qualified leads.

How to solve this issue?

The best way to boost your lead-to-sales conversion rate is to drop the fixed pay per lead model altogether.

Here’s how to do it:

1. Stop hiring, start collaborating.

In the traditional model, clients often treat their relationship with a lead generation agency as a simple hiring process. 

They provide a brief outlining the types of leads they need, specify a delivery schedule, and expect results.

Clients limit their interaction with lead gen professionals to these initial instructions, missing out on the valuable insights these experts bring to the table.

They see the lead generation agency as a mere service provider, essentially outsourcing the lead generation process. 

This separation creates a disconnect that often leads to unsatisfactory outcomes.

To resolve this, a fundamental mindset shift is required. Instead of viewing it as a hiring process, clients and lead generation agencies should embrace a collaborative stance.

Start by blurring the lines between client and agency responsibilities. 

Rather than maintaining a strict division of duties, adopt a more collaborative approach. Both parties should work together closely to align their goals and strategies.

By collaborating, you can leverage the expertise of lead gen professionals and gain deeper insights into optimizing your sales process. 

This partnership mentality fosters better communication, more tailored strategies, and ultimately, a higher conversion rate.

2. Share Sales Data 

Another key way to collaborate with your lead gen agency is by sharing sales data.

Clients should be open to sharing their sales data with lead generation professionals. 

This data is the crucial link between the leads generated and the actual sales. 

By providing this information, clients enable lead gen experts to refine the lead generation process from the ground up.

Sharing sales data helps in creating more precise lead generation campaigns that target leads most likely to convert into customers. 

This creates a win-win situation, as both parties benefit from better-qualified leads.

With access to sales data, lead gen professionals can tailor their strategies to your unique needs, ensuring that the leads you receive are not just plentiful, but also high quality.

3. Adopt Exponential Pay Per Lead Model

In simple terms, “exponential” means rapid increase or rapid growth.

So, an exponential pay-per-lead model means increasing the price per lead. The lead gen professional can earn more per lead if the lead converts.

How does this play out?

In an exponential pay per lead model, you set up a base rate and commission rate. The base is the minimum fixed price you pay per lead and the commission rate is the additional money they get if a lead converts.

This setup incentivizes lead gen professionals to prioritize lead quality over quantity. Since they can earn more per lead if it converts, they are motivated to deliver leads that are more likely to turn into paying customers.

Let’s see an example:

• Base Rate: $10 per lead. This is the standard compensation for every lead generated.

• Commission Rate: 20%. This is the additional bonus they receive for high-quality leads that have a higher chance of becoming paying customers.

Suppose a lead generation professional generates 100 leads in a month:

• If all 100 leads are of standard quality, they earn $10 for each lead. This results in a total compensation of $1,000 (100 leads x $10 per lead).

• If 20 out of those 100 are of exceptionally high quality and have a higher chance of converting into paying customers, they also receive a 20% commission on top of the base rate. Now, the commission percentage could be per lead or per deal:

1. Per lead: They get $10 (base rate) + $2 (20% commission), which equals $12 per high-quality lead.

2. Per deal: If the business owner sells a product/service worth $2000, you’d make 20% of the selling price. In this case, it would be $400. So, in total, $10 (base rate) + $400 (20% commission), which equals $410 per high-quality lead.

It comes down to the type of deal that’s settled.

Their total compensation in this scenario would be:

• For the 80 standard quality leads: 80 leads x $10 per lead = $800
• For the 20 high-quality leads: 

1. Per lead basis: 20 leads x $12 per lead = $240 OR 
2. Per deal basis: 20 leads x $410 per lead = $8200 

The overall compensation for the month would be $1040 or $9000 — depending on the type of deal made between business owner & lead gen professional.

Note: Commission per deal seems more promising. But if you don’t have a strong portfolio yet, you might want to begin with per lead commission.

This model ensures the lead gen agency is compensated not just for the number of leads generated but also incentivized to focus on delivering high-quality leads that convert better. 

Clients benefit from a higher likelihood of sales conversions and a more significant return on investment.

Figuring Out What’s Broken: Lead Generation, Sales Conversions, or Both?

So far, we’ve seen the differences between lead generation and sales conversion.

We’ve realized leads-to-sales conversion rate is the most important metric to track.

We’ve also learned exponential pay per lead is better for profits as compared to fixed pay per lead.

The question now is — how do YOU figure out which area needs work? Where do you start fixing things for your business? 

Do you fire your current lead gen partner? Do you attempt lead gen from scratch — all by yourself? 

Or do you start implementing the listed solutions directly into your current situation?

Analyze Existing Problems First

The first step to strategically fixing your revenue inflow is to analyze the existing problems in your system. 

You need to identify the weak points in your “lead gen process” and “sales funnel.” 

Study these aspects in detail to figure out whether one part or the entire equation needs work.

This detailed assessment will save you from making hasty decisions that could lead to further losses in money and time. 

Every miscalculated step costs you time, which is almost always worth hundreds of dollars in the lead gen business.

So, here’s a checklist to help you sort your weak points and realize your strengths. 

1. Audit Your Lead Generation Process
   • Are you targeting the right audience?
   • Are the leads qualified based on your criteria?
   • How well are you nurturing the leads before passing them to sales?
2. Evaluate Your Sales Funnel
   • Is your sales team equipped to handle the leads?
   • Are there any bottlenecks in your sales process?
   • What is your current conversion rate, and where does it drop off?
3. Analyze Sales Data
   • How does the sales data correlate with the leads generated?
   • Which types of leads convert better, and why?
   • Are there specific stages in the sales process where leads frequently drop off?
4. Assess Collaboration with Your Lead Gen Partner
   • How well do you communicate your needs and goals?
   • Is there room for more collaborative efforts?
   • Are you leveraging their expertise to its fullest potential?
5. Implement Incremental Changes
   • Start with small, manageable changes based on your findings.
   • Monitor the impact of these changes closely.
   • Adjust your strategies as needed to refine the process further.