"Sixty dollars a lead sounded cheap until I did the division," said Delia Okonkwo, who owns a commercial roofing company in Phoenix. Her agency had quoted $60 per lead. Her crew turns about 4 of every 100 leads into a signed job. So each new customer cost $60 divided by 0.04, or $1,500, before she had spent a minute on a bid.
That division is the whole subject. Whether pay per lead, pay per appointment or a monthly retainer costs less depends on three things: the unit price, your close rate, and who is stuck with the loss when quality drops. Below, the same 4 percent close rate is priced under each model, then pushed to 2 percent to show who carries the risk. This is for businesses buying lead generation and for agencies setting the terms.
The three models in plain words
Pay per lead: you pay a set price for each lead that meets an agreed description. Pay per appointment: you pay for each meeting that actually takes place with someone who matches the description. Retainer: you pay a fixed amount each month for the agency's work, whatever it produces. Many deals mix them, such as a small retainer plus a fee per meeting.
The difference is where in the process the money changes hands. A lead is far from a customer. An appointment is closer. A retainer is not tied to a stage at all. The farther the payment is from the sale, the more of the risk sits with you.
Who carries the risk in each
Under pay per lead, you carry the risk that leads do not become customers. The agency is paid when it hands you the lead, whether or not the lead was any good. Under pay per appointment, the agency carries more: it is paid only when someone shows up, so it has to find people who fit and get them to attend. You still carry the risk that the appointment does not close.
Under a retainer, you carry nearly all of it. The agency is paid on the first of the month either way. You are buying capacity and expertise, and the question is whether the work produces enough volume at enough quality. A retainer has one advantage the other two lack: the agency can afford to spend time on things that do not show up in a unit count, such as testing a new angle or fixing your list.
The incentives each one creates
Pay per lead rewards volume. The easiest way to make more leads is to loosen the definition, so your lead criteria need to be tight. Watch for leads that are shared with other buyers, which happens often when leads come from a marketplace; ask whether yours are exclusive. Pay per appointment rewards meetings that happen, which is better aligned with you, but it can reward booking people who are polite and have no budget. A retainer rewards keeping you comfortable. The best protection is a monthly report with numbers you can check.
Cost per customer at a fixed 4 percent close rate
Here is Delia's math. Assume 100 leads a month. A 4 percent close rate gives 4 customers. Assume 20 of those 100 leads turn into held appointments, and 20 percent of appointments close. That is also 4 customers, so every model produces the same result and the only difference is what you pay. The prices are illustrations.
| Model | Price | Monthly bill | Cost per customer |
|---|---|---|---|
| Per lead | $60 a lead | 100 x $60 = $6,000 | $6,000 / 4 = $1,500 |
| Per appointment | $250 per held appointment | 20 x $250 = $5,000 | $5,000 / 4 = $1,250 |
| Retainer | $4,000 a month | $4,000 | $4,000 / 4 = $1,000 (if the agency delivers 100 leads) |
On these numbers the retainer looks cheapest, per-appointment next and per-lead dearest. The ranking is fragile, so test it. Suppose quality drops and your close rate falls from 4 percent to 2 percent. The leads are the same count, but half as many close.
- Per lead: the bill is still $6,000 and you get 2 customers. $3,000 each. The cost per customer doubled and the agency lost nothing.
- Per appointment: if the agency's definition of "qualified" holds and 20 percent of appointments still close, fewer leads turn into held appointments (10, not 20), so the bill falls to 10 x $250 = $2,500 for 2 customers. $1,250 each, unchanged. If the definition is loose and the appointment close rate falls to 10 percent, you pay for 20 appointments, $5,000, for 2 customers: $2,500 each.
- Retainer: the bill is still $4,000 and you get 2 customers. $2,000 each. And if the agency delivers only 60 leads at the original 4 percent, you get 2.4 customers for $1,667 each.
The retainer is also the only model where more volume lowers the cost per customer: at 140 leads it is $4,000 / 5.6 = about $714. So retainers are not worse; they are riskier in both directions, and the risk is yours. The rule of thumb that falls out of the arithmetic: the closer the payment is to the sale, the less you risk and the more the agency charges per unit for taking it on.
Contract terms that matter
- A written definition of a qualified lead or appointment: title, company size, location, a stated need or timeline.
- A credit or replacement for invalid, duplicate or out-of-criteria leads within a set window, such as 72 hours.
- Exclusivity: whether your leads are sold to anyone else.
- Who owns the contact list, the replies and the sending accounts when the contract ends. You should.
- Minimum term and notice period. A 90-day minimum is common; make sure there is a way out if the numbers are bad.
- A monthly report showing sends, replies, appointments held and no-shows, in numbers you can verify.
- Compliance: US commercial email needs a real address and an opt-out, and calls and texts have consent rules.
Which fits a first 90 days
If you have a clear buyer and a sales process that works, start with pay per appointment, or a hybrid of a small retainer plus a fee per held appointment, for 90 days with an exit. The agency is paid when you get what you want. If you cannot yet describe your buyer in one sentence, none of these will work, and your first spend should go on defining the buyer. If you want speed and can tolerate risk, a low retainer with a 60-day out shows you how the agency works. Avoid long retainers without a performance review before you have seen two months of reports.
Questions to ask any agency
- What exactly counts as a qualified lead or appointment, in writing?
- Whose email accounts and domains send, and who owns them afterward?
- Are leads exclusive to me?
- What happens to my bill if quality drops?
- Can I see replies, not only summaries?
- How do you handle opt-outs and bounces?
- What is the notice period, and what do I get when I leave?
Related reading: lead generation companies for small businesses, appointment setting service vs doing it yourself, cold email agency vs software and how much a lead costs for a small business. For the agency's side of these deals, see how to get clients for a lead generation agency, and the best way to find B2B leads for a small company shows what it costs to do the finding yourself.
If you would rather run the finding and the follow-up yourself, Rocketship finds the buyers, emails them from your own Gmail, follows up, and books the meeting on its own. Plans that get you customers start at $24.99 a month (Launch), and every monthly plan starts with a 7-day free trial, card required.