What is a Lead Generation Agreement?
A Lead Generation Agreement is a legal document that delineates the expectations and terms between a business and a lead generation specialist or company. This agreement is integral in businesses that rely on lead generation as a key component of their sales and marketing strategy.
In simple terms, a Lead Generation Agreement outlines the process by which one party (the lead generator) provides potential customer data or leads to another party (the business, client or customer) . These processed leads could range from names, phone numbers, email addresses to more specific or designated information about a particular type of customer or for a particular type of product or service.
Every Lead Generation Agreement is different, but the most basic Agreement is structured to provide both parties with legal protection when a lead is passed along. Most Lead Generation Agreements contain clauses regarding breach of contract, confidentiality, ownership of information, liability and termination. A well-written Lead Generation Agreement, like all contracts, is to protect against fraud or loss for either party to the contract.
Key Features of a Lead Generation Agreement
A lead generation agreement should include important terms relevant to the relationship between the parties engaged in lead generation. Below are some key terms to be consider in negotiating a lead generation agreement:
Scope of Services: It should be clear what type of services are expected to be provided by the lead generation party, such as where the leads will originate, how qualified the leads will be and the format in which leads are delivered.
Compensation: It is important to address an appropriate compensation structure in the lead generation agreement. Compensation can be based on cost per click (CPC), cost per action/cost per acquisition (CPA), cost per impression (CPM), revenue share or any variation or combination of the above.
Duration: In a booming market any one lead can turn into a fatal competition if its not addressed properly. Accordingly, its advisable to consider the duration of the term of service, whether on a month to month or annual basis, along with automatic renewal provisions, if applicable.
Termination: Notwithstanding the foregoing, you should also consider termination provisions in the event the lead generation agreement is no longer serving its intended purpose or generating adequate quality leads. Consider any notice periods or penalties applicable upon termination.
Advantages of Utilizing a Lead Generation Agreement
Lead Generation Agreements can be one useful way to handle what is a delicate relationship between the parties that is not covered by noncompete covenants and other restrictions on partners or officers. By entering into a formalized agreement, the parties are able to get their respective obligations down on paper, which in turn provides legal protection and allows for greater clarity of the scope of the relationship. Sometimes, a separation between parties can be uncertain because it is unclear what exactly happens to the lead or to the revenues that are generated through a specific contact. By having an agreement, both parties can be insured of their respective role in the matter and also can be aware of what happens if they have parted ways. Finally, it helps improve the relationship between business partners. This is critical when money is involved, and leads can be worth many thousands of dollars.
Common Issues in Lead Generation Agreements
One of the most pressing issues when negotiating a lead generation agreement is understanding and identifying the scope of services to be provided. The general principle should be that the scope of services will depend on the nature of the business and what elements of service will fulfil its offer to customers.
The term ‘qualified lead’ should also be defined clearly in the scope of services section so that both parties understand what qualifies as a good lead for the business. It is also essential that the lead generation service provider uses the right metrics when reporting back to ensure that they can confirm that such leads are not being passed off on an arbitrarily high abstraction rate or over-relying on very lightly processed leads, which may be less than around 5% to 10% of the total number of leads presented to it.
While the lead generation industry is still largely unregulated, the Competition and Markets Authority has recently taken the lead in addressing compliance issues around spam text messages, misleading reviews and subscription traps. Getting ahead of any development in this area, and requiring that the lead generation service provider ensures all its practices are compliant, puts the business in a better position should the spotlight be put on its lead generation practices.
Best Practices for Drafting a Lead Generation Agreement
As practical matter, there are no hard and fast rules with the drafting of lead generation agreements. Yet a few common themes seem to emerge. The following sections are clearly areas that we have found that you should discuss, as these particular sections repeatedly appear in the market.
The Treatment of the Leads
Specifics surrounding how the parties treat the leads is an area that may not be indexed in such a manner, but practically becomes something everyone has to work through once the leads are generated and the parties start implementing the program. For example, what if a Leads Provider generates a lead, the prospect provides a lot of detailed information to the Leads Provider, but then the Leads Provider refuses to turn it over because the Leads Provider does not want to handle that particular transaction? It may not be uncommon for a Referer to refuse to call the lead because the leads provider generated the lead based upon some information that was not disclosed to the Referer. Rather than waiting until a dispute arises, the process should be discussed upfront as to how the leads will be treated by the Referer and by the Leads Provider. Clearly, these business rules need to be laid out prior to generating the leads so that the expectations are realistically set early on. The parties also need to be able to agree on how they want the leads to be delivered, both with respect to the method of delivery of the lead form as well as the timely manner the leads should be delivered. Having these same issues arise over and over again (even though the parties may be handling them with a handshake) creates a lot of confusion over time. We hope having these business rules discussed upfront will help avoid these issues. It will require an investment of time and effort by both parties, but it will help make the rest of the agreement flow a little bit more easily.
Confidentiality
Confidentiality is another section of the agreement that should be discussed prior to executing the agreement. While the laws of certain states provide that the leads are inherently confidential when generated by the Leads Provider, other states laws do not have such a rule . We have found that once the leads are generated, the Leads Provider and the Referer may wish to share the leads with other people who have a similar call pattern or who have the same business model. The confidentiality section should define what information or documents are deemed confidential and what the parties’ obligations are once the confidentiality is established. In addition, the agreement should provide that following termination or expiration, that the confidential information should continue to be treated as confidential for a specified period of time.
Ownership Issues
Another area to address relatively early in the discussion is the ownership of the information created through the lead generation process. For many lead generation agreements we see, coming in, the Leads Provider owns the program. The Leads Provider is responsible for sending leads to the Referer and is paid for leads, whether the leads are qualified or unqualified. The Leads Providers, however, do not own the information generated through the lead generation process. While other parties we have encountered call themselves "Leads Providers," their right to use the information generated through their efforts supersedes everyone else’s and the Referer gets what it gets (assuming it gets anything) but does not get ownership of the data. Just as with the confidentiality analysis, the parties can save themselves a lot of headaches by discussing this issue early in the relationship.
Payment Platforms
Another important aspect of this area is discussing the payment options. For many of our clients who do not have an existing payment portal, we have evaluated various payment platforms, collected user feedback, and assisted in the roll-out of the portal. The payment platform is a key component and important to discuss early in the process. While there are no cut and dry solutions or "one size fits all" answers to these lead generation agreement issues, taking the time early on to specifically discuss these issues will likely save both parties a lot of confusion later in the process.
Legal Aspects of Lead Generation Agreements
When drafting or entering into a lead generation agreement, the parties should be cognizant of applicable regulations and protections afforded by intellectual property rights. Terms relating to each of these areas should be adequately addressed in the lead generation agreement.
A. The Telephone Consumer Protection Act
The Telephone Consumer Protection Act (the "TCPA") restricts the manner in which a "lead generator" can communicate with intended recipients. While the Federal Communications Commission ("FCC") has stated that telemarketers may procure leads by allowing potential customers to provide their numbers on a consent form, it has cautioned "such consent frequently will not satisfy the [TCPA]" because callers are unable to document the contents of the lead generator’s advertising or solicitations and verify that the potential customer intends to consent to the use of his or her telephone number. Parties to a lead generation agreement should consider whether the lead generator will obtain express written consent from the potential customer before passing along the lead to the calling party.
B. The Controlling the Assault of Non-Solicited Pornography and Marketing Act
Various federal and state laws, such as CAN SPAM and the Controlling the Assault of Non-Solicited Pornography and Marketing Act (the "CAN SPAM Act"), prohibit sending electronic commercial messages either without clear notice or to those who have opted out of receiving such messages. The CAN SPAM Act provides an option for parties to agree to shared liability. If both parties consent, the recovery of damages may be limited to a maximum statutory sum per email. Lead generation agreements should clearly set forth the parties’ roles and responsibilities in navigating the complex landscape of CAN SPAM and other federal and state regulations.
C. Intellectual Property Protections
Complicated intellectual property issues arise when the intellectual property of two parties interacts through a lead generation agreement. For example, a typical lead generation agreement allows a lead generator to communicate specific content and links through an email message and then to collect information submitted by potential customers. A sophisticated lead generator’s intellectual property often appears in the original promotional material sent through email. A lead generation agreement should expressly address the ownership of that material.
In the absence of an express agreement, the lead generator may unwittingly provide the lead the authority to reuse or reproduce its materials and gain access to its intellectual property. The law generally allows the assignment of an intellectual property right. By the lead generator vesting the lead with an exclusive right to use the content, that right becomes an asset, and the lead can exploit the right as if he were the original owner. This is especially concerning in a situation where the lead is a competitor of the lead generator. To prevent this situation from occurring, lead generation agreements should expressly address the intellectual property rights of both parties. Because lead generation agreements involve multiple parties and multiple potential uses of intellectual property, these agreements are complex. That is why legal advice in drafting such an agreement is essential.
Examples of Effective Lead Generation Agreements
To illustrate the principles of a lead generation agreement, consider the following examples:
Example 1
Company A is a florist specializing in weddings. They decide to partner with a local wedding venue listing service to drive more traffic to their website and improve sales for their wedding flower delivery service. The lead generation agreement stipulates that Company A will pay the listing service $10 for each referral that results in a booked wedding. Company A also agrees to offer a 10% discount to all clients who were referred to them through the listing service.
Within 6 months, Company A sees an increase in website traffic and a 25% boost in wedding orders. In return , the listing service has increased their revenue on the back of referral commissions paid by Company A.
Example 2
Company B is an online grocery store that wants to expand its clientele. It enters into a lead generation agreement with a coupon site. The agreement specifies that the company will pay the coupon site $15 for each online order that comes with a coupon code from the site.
Within a year, Company B has doubled its subscriber base. Even more importantly, they were able to do this without any upfront cost, paying only for leads who become paying customers.
Example 3
Company C is a software company that offers a free assessment tool that helps businesses understand what tech stack could be beneficial for them. They want to build a list for further upsell efforts, sending anonymous but opt-in emails with additional resources. They enter into a lead generation agreement with a marketing firm where they’ll pay $5 per referral, for every customer who signs up to receive future notifications.