Market Research – Founder Institute

The journey continues and we are now in week two of the Founder Institute program and we are making huge strides as we prepare our market research for Formactivate.

The goal of this week as I mentioned is market research and we’d thought that you would be interested in some numbers.  We’ve always know that there is a big market in lead generation and lead response but honestly we were surprised at just how large this market is and how rapidly it is growing.

By applying some of the research principles that we have been studying we were able to determine that this year alone businesses will spend about $105 billion dollars on online marketing and advertising. The is the market for all advertising of which lead generation and the buying and selling of leads plays an important role.

The lead generation business is growing at a rate of over 20% per year with much of the growth coming from the automotive, legal, insurance and health care sectors.  The average lead cost in one of these markets is $50 per lead and although we are not planning on generating leads we are going to make these purchases more efficient.

FormActivate operates in a market segment called lead response– which deals with the way companies respond to new leads. As you can imagine, with companies spending billions of dollars on lead generation, they want to ensure that their money is well spent – and this is where we come in. By connecting prospects to companies immediately when they express interest in a business, we provide the sales team with the best possible opportunity to convert a prospect into a new customer.

So, how do we price our service, and what type of market slice do we expect to gain? Our direct competitors price a lead response connection at approximately $1.00 per lead. However we a consumption model, in which we charge a per-minute rate for all connections.

Our typical rate is $0.10 per minute. Given a typical phone call duration of 5-8 minutes, we are pricing our offering competitively and will be providing a parity service for about 60% of the competitors pricing.

To understand the market share question, we need to look at the average purchase price of a lead (in all verticals combined), which is about $30.00. So, by charging $1.00 for lead response, we’re effectively pricing lead response at a 3% slice of the lead generation market. This amounts to $162 million in 2012 and is projected to grow to $300 million by 2015. We feel that this is a pretty good model to pursue – especially since there are so few competitors in this field.

Of course, getting a slice of the $300 million market segment is easier said than done. So, stay tuned as we continue our journey to identify the next steps in making FormActivate the de facto standard in lead response.