Lead generation is a popular form of monetization. Not only does it provide a major service to businesses, but it can be an incredibly lucrative source of revenue. A lead generation business focuses on finding online traffic in need of a certain service or product, actively searching for a solution, and then funnel that traffic to a company or business willing to pay for that contact.
For anyone who has worked in sales, this is the difference between a lead and a cold call. For businesses where a customer is worth thousands, tens of thousands, or more, paying $100 for that person’s email is a good deal.
That is also higher than an ad click or affiliate sale from Amazon. Someone who can consistently deliver leads that convert can negotiate very good rates for their leads.
This is what makes lead generation businesses so desirable for investors.
Where To Buy A Lead Generation Business?
Because lead generation is such a popular form of monetization and gives more flexibility for website/business owners to negotiate higher rates, it’s a popular type of business to buy or sell.
Private Sale vs Broker
The private sale route involves reaching out via contact information provided on lead generation websites. Because good monetization of a lead generation (or lead-gen) site involves negotiating rates for the leads, this information is often easier to find.
You won’t necessarily get a response but outreach is easier. Negotiating a private sale can be a great way to get a shot at lead generation businesses that aren’t actively on the market.
The advantage of going through a brokerage or marketplace is time savings and having more information readily available for due diligence.
The businesses listed on a marketplace are clearly on sale so there’s no cold contact. The potential acquisitions are listed and basic information is provided for the investor to kick off their due diligence process.
Best Marketplaces For Buying Lead Generation Businesses
Three major marketplaces stick out as excellent options for looking to buy established and profitable lead generation businesses.
This is the first place I like to look at for Lead Gen businesses that are up for sale. The pickings for Lead Gen businesses tend to be less than other styles of monetization, but it’s a great first-stop to see what is available.
Flippa is the largest online marketplace in the world and it is an open marketplace meaning the listings aren’t heavily vetted the way they are with some other marketplaces.
This does make it more of a Wild West where good due diligence is essential, but it also means more small lead generation businesses from beginners may appear up for sale because the barrier to entry is so much less.
FE International is one of the oldest continuous marketplaces for six and seven-figure online businesses. This reputation makes them a marketplace that often gets the attention of successful and profitable lead-gen businesses looking to sell.
Buying vs Building a Lead Generation Business
Building a lead-gen business is possible and follows many of the steps one would follow to create a niche website. Locate a niche, rank for keywords, target traffic. The additional steps come with finding local queries and negotiating deals to connect local traffic with local providers.
That can be tricky and is a major reason why so many site owners stay with ads and affiliate links. They may pay a lot less, but they’re much easier to set up and then ignore.
Acquiring a lead generation business that is already up and running is a much easier process because that challenge of setting up successful and reliable monetization is already done.
The benefits of buying are many. Instant cash flow, an in-place revenue system, and a proven profit record are all major benefits to buying an existing lead-gen business.
If you own an existing niche site in the same niche as the lead-gen business, that creates even more opportunities to make both businesses more profitable.
Benefits of Building From Zero
The benefits of building instead of buying come mainly in the form of increasing skills and going easy on the budget. When you build a business from scratch it forces you to learn all of the necessary skills, troubleshooting, and creative solutions to get around common challenges.
On the budget side, successful online businesses can be expensive and a lead-gen business is going to be pricey. These are in high demand but there are fewer available for sale, meaning prices and multiples skew to the high side.
Building from zero will take more time, and has a higher risk of failure than an already established lead generation business. However, it is also far less expensive and if flipping that means potentially a much higher profit at the time of sale because there wasn’t a large purchase price.
Benefits of Purchasing an Existing Business
Purchasing an existing lead generation business comes with many advantages. The first is time. Building up a good lead-gen business from scratch takes time, and it’s not a certain thing. By buying an existing business an investor gets to skip months or even years of time.
There’s also the instant cash flow. Buying an existing business means there’s cash flow from day one which starts making up for the purchase price, can be used to build passive income, or re-invested to grow the lead generation business even more.
When good due diligence leads an investor to quality lead-gen business, they should inherit a good SOP, good contracts, and a stable business that can be maintained smoothly even through the transition.
That stability should make it safer to rely on that income and easier to scale up to even higher earnings.
Due Diligence When Buying a Lead Generation Business
Due diligence is a crucial part of buying a lead-gen business. You don’t want to drop six figures to buy a business only to find out the lead buyers plan to all bow out if they’re not dealing with the original owner.
Business Performance: Traffic & Leads
How much are businesses paying for the leads? Is it in the form of phone calls, emails, or contact forms? How do these numbers compare to the industry average?
Look to see how steady the traffic is and what the conversion rate of traffic into lead is. Can these numbers be improved? Are the buyers consistent or is the owner forced to find new buyers for leads all the time because the leads aren’t converting well?
These questions matter when determining how stable the business actually is.
Where does organic traffic come from and what are the rankings? Investors looking for a flip want to see solid traffic coming from mid-page rankings. This tells them that improving rankings will improve traffic and the likely number of leads.
If the rankings are maxed out, this could make a potential acquisition best for long-term passive income.
Niche & Geography
Every niche has its specific challenges. Geography also plays a huge part with a lead generation business since many services will need to be local to some extent to make buying leads worth it.
Commissions & Fee Structure
The value of a lead can vary greatly between niches, and there are many different ways to price or sell leads. Because of this, a thorough understanding of the commissions and fee structures that an existing business uses is crucial.
Does the monetization make sense, or could the leads be worth a lot more if sold in a different way?
Good marketing assets or a solid marketing presence is a definite plus when looking at a lead generation business.
A strong, well-marketed brand only increases the potential of a lead generation business.
Client relationships are huge with lead generation. A reputation for delivering leads that produce makes them that much more valuable to business partners.
See what you can find out about client relationships and get a feel for how secure and good those relationships are.
Out-of-the-Box Advice People Won’t Tell You
Each business has its challenges, quirks, and special traits that make it different from other types of businesses.
Having a referral system is a big plus with a lead generation business. With lead generation getting those direct referrals, and the trust that comes with them, can really make a huge difference.
Rewarding people in the industry who can bring more potential customers also just makes sense to scale up and grow the business.
Organic traffic is ideal, but those should be supplemented with these two growth strategies to improve any lead-gen business.
Local Paid Traffic
Since so much of lead generation is connecting customers with local services like lawyers, plumbers, or private medical clinics, paid local traffic targeting specific areas can be a great way to grow the business.
This can build on existing areas where the business has seen limited success, build on already solid local success, or even hitting entirely new markets while scaling up.
Make sure to only go for paid traffic with platforms that give control to narrowly target areas and preferably key demographics to tune in your paid traffic budget as much as possible.
Think about what else of value could be offered to companies looking for hot leads, or to potential customers not quite willing to make that jump.
Related offers may help you find a way to further monetize the traffic that comes to the business, and further build partnerships with clients to the benefit of both parties.
How To Value a Lead Generation Business
When it comes to major questions about valuing a lead generation business, how to value them is right near the top.
There are a few different ways to value a lead-gen business, and the exact method used can vary depending on the marketplace where the business is being sold.
There are a few key points that need to be figured out to get an accurate valuation.
Formula for Valuations
While the full formula for figuring out the valuation of a lead generation business might vary a bit from marketplace to marketplace, all of them will generally start based on this formula:
The average net profit of the last 12 months is the “average profit” number. The 20-50 times multiple is a very wide range, but lead generation businesses can be different enough that it requires that range to provide room for negotiations.
Some marketplaces look at things like assets, contracts, and other factors but for the most part, that formula is the basis of most price negotiations.
Figure out a Valuation Multiple
Multiple factors go into determining the multiple that gets used. The multiple is heavily negotiable but there are several factors that come up in determining whether the business for sale tends to get a higher or lower evaluation.
Factors such as:
- Age of the business
- Successful track record
- Brand recognition
- Authority of website
- Clear written and tested SOP
Growth, Potential, and Stability
These are three crucial factors to any business, and each one tells a lot about the lead generation business being purchased. Good growth and stability are great signs, but it’s also important to have more upward potential if you want to flip the business in the future.
The combination of growth, potential, and stability give a full picture of what the business has to offer to an investor.
End Goal – Flip or Passive Income?
The end goal for an investor makes a big difference on what factors are most important during the due diligence of a lead generation business. Someone looking for passive income wants to see long-term stability and reliability.
While that’s still important for flippers, they also want to see high potential that hasn’t been tapped yet by the existing business. That’s less important when looking to acquire passive income.
An investor looking to flip a business for profit and an investor who wants steady safe passive income might look at the same business and have very different ideas on whether it is a buy or pass.
Have the end goal in mind, otherwise proper due diligence becomes much more difficult.
There are several main points to keep in mind when searching for the right lead generation business for sale.
- Lead generation businesses are harder to find in marketplaces than other monetization methods
- Because of this lead generation websites can go for a higher multiple
- Due diligence is crucial before purchasing a lead generation business site
- A referral system, paid targeted local traffic, and related offers are great ways to encourage major growth
- The top priorities for investors looking to hold versus those looking to flip will differ
Keep the information from this article in mind, don’t skimp on the due diligence, and you will be in a better position to find a lead generation business for sale that meets your specific investment needs.