A young man I know from New England recently launched his own modular home business. He struggled to grow his company for the first few months, but eventually he started getting his bearings. He said that the mistake he made early on was focusing on the wrong leads.

Finding the right leads is one of the most important parts of running a business. This is a topic that Russ Ruffino, founder of Clients on Demand, raises with new entrepreneurs. He says that you need to spend your time focusing on finding the right customers, rather than acquiring as many leads as you can.

Ruffino was interviewed on Entrepreneur and talked about the need to consistently generate new clients. He points out that without new clients, a business can’t survive. However, he also points out the need to attract quality clients that will help you generate revenue.

This means that you need to score your leads. You will run into a number of issues if you don’t score them carefully. Here are some of the biggest concerns.

You Will Waste a Lot of Time on Leads that Will Never Convert

It is easy to get overly optimistic when you talk to a potential client. You may believe that they are probably going to become a paying customer the moment they express an interest in your products or services. Unfortunately, the vast majority of leads won’t pan out.

The average conversion rate across all industries is between 2% and 10%. Even if your business is lucky enough to be on the higher end of this spectrum, that still means that nine out of ten of your leads will never convert. You can spend dozens of hours engaging with potential customers that never end up purchasing anything.

Over time, you will become better at predicting which leads will convert. This will keep you from wasting time on leads that won’t pan out.

You Will Overpay for Poor Performing Advertisements

If you are running campaigns on Google AdWords, Facebook or any other digital advertising platform, you should be monitoring the performance of your ads. You should also monitor the conversion rates of leads that have been acquired from different sources.

You should be tracking the keywords, geography and demographics on all of your ads. You will be surprised by the difference in lead conversion rates. One advertiser that I spoke with only runs online ads in California, Georgia and Texas, because they found that those leads have the best ROI. Another advertiser makes sure their ads only display to people over the age of 30 that have incomes exceeding $30,000 a year.

If you aren’t tracking your leads carefully, then you will find that you will be paying too much for ads that don’t convert.

You Will End Up With Customers that Pay their Bills

When you are developing a lead scoring model, you need to pay close attention to the types of customers that never pay their bills. You want to avoid these customers like the plague. Unfortunately, some businesses keep making the same mistake and taking on the same kinds of customers that don’t pay their bills over and over again.

There is nothing more frustrating than working for customers that don’t pay their bills. You won’t just have wasted time and energy doing work for them without compensation. You will also incur expenses if you have to use materials or pay to outsource services. You will be worse off financially than if you hadn’t worked for those clients at all.

You Will Deal with Short-term Customers and Need to Keep Looking for New Ones

You want to try to find long-term customers if possible. They will be a lot more valuable to you for several reasons:

  • You don’t need to spend as much money on advertising if you have a larger number of long-term customers
  • You don’t have to deal with the learning curve that you will always face when working with someone new for the first time
  • You won’t have to go through the same feast and famine cycles, because you will have plenty of work throughout the year
  • You will develop a system with your long-term customers as you both get to know each other, which means that you won’t waste a lot of time having to explain things to each other, redo work due to misunderstandings or have to make concessions

Keep this in mind when developing your lead scoring models. You want to pay attention to variables that indicate a customer is going to be shorter-term, which means that they are not going to be as valuable.

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Ryan Kidman is a startup-investor and serial entrepreneur. Founder of Catalyst For Business and contributor to search giants like Yahoo Finance, MSN. He is passionate about blogging and covering topics like big data, business intelligence, startups & entrepreneurship. Follow him on twitter: @ryankhgb

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