Contents
- Lead generation looks profitable on a whiteboard.
- Stealth Labz has 28 months of QuickBooks-verified financial data (February 2024 through January 2026) across a multi-vertical lead generation and e-commerce operation.
- Per-lead unit economics break down into five components:
- The lead generation business is a volume and efficiency business, not a high-margin business.
The Setup
Lead generation looks profitable on a whiteboard. Buy traffic at $X, sell leads at $Y, pocket the difference. In practice, most lead generation operations lose money for their first 6-12 months because operators underestimate four costs: traffic acquisition, technology infrastructure, compliance overhead, and lead returns (buyers rejecting leads and requesting credits). The operators who survive are the ones who understand their unit economics at the per-lead level -- not just the monthly P&L.
The conventional approach is to track cost per lead (CPL) and revenue per lead (RPL) and call the difference "margin." That is incomplete. It ignores the cost of leads that never sell (unsold inventory), leads that get returned (quality disputes), leads that fail compliance checks (consent issues), and the platform costs amortized across your total volume. A lead generation business with a $20 RPL and a $10 CPL looks like a 50% margin business until you account for the 30% of leads that go unsold and the 10% that get returned. Then the real margin is closer to 20% -- before infrastructure costs.
Understanding the full cost chain is what separates operators who scale from operators who chase revenue and run out of cash.
What the Data Shows
Stealth Labz has 28 months of QuickBooks-verified financial data (February 2024 through January 2026) across a multi-vertical lead generation and e-commerce operation. The numbers are instructive because they show what a real operation looks like -- not a projection, not a case study from a vendor selling software.
28-month P&L summary (all projects combined):
| Line Item | Amount |
|---|---|
| Net Revenue | $868,147 |
| COGS (Affiliate Payouts) | $848,031 |
| Gross Profit | $20,116 (2.3%) |
| Total Operating Expenses | $166,899 |
| EBITDA | -$146,783 |
(Source: 28_month_financial_locked_values, QB-verified)
That 2.3% gross margin demands explanation. The majority of revenue ($652,495 net) came from PRJ-12, a supplement e-commerce operation running through affiliate networks where COGS (affiliate commission payouts) consumed 105.9% of net revenue -- meaning the operation was paying affiliates more than it earned on the products they sold. This is common in high-volume affiliate marketing when scaling aggressively: you acquire customers at a loss on the front end and attempt to recover through rebills (subscription revenue) on the back end. PRJ-12's rebill revenue was $51,093 against $509,821 in initial sales, confirming the model was acquisition-heavy.
The lead generation verticals tell a different margin story:
| Project | Net Revenue | Payout Expense | Gross Margin |
|---|---|---|---|
| PRJ-16 | $48,342 | $12,202 | 74.8% |
| PRJ-14 | $14,419 | $8,710 | 39.6% |
| PRJ-15 | $10,197 | $6,380 | 37.4% |
| PRJ-05 | $29,686 | $22,854 | 23.0% |
| PRJ-13 | $113,009 | $106,870 | 5.4% |
PRJ-16, operating as a network with owned traffic, achieved 74.8% gross margins -- the highest in the portfolio. That number reflects the fundamental economics of lead generation: when you own the traffic source and the distribution infrastructure, margins are structurally higher than when you depend on affiliates (who take 60-80% of revenue as commission).
For the insurance vertical specifically, PRJ-05 (operating across 11 insurance verticals in South Africa) generated $29,686 in net revenue at a 23.0% gross margin. The US insurance verticals (PRJ-08 through PRJ-11) are pre-revenue as of January 2026, with infrastructure built and traffic as the primary gap to revenue.
Industry benchmarks for context: According to IBISWorld's 2025 insurance lead generation industry report, the average gross margin for US insurance lead generation companies ranges from 15-35%, with top performers reaching 40-50% through owned traffic and exclusive lead delivery. The spread is almost entirely explained by the owned-versus-purchased traffic mix and the exclusive-versus-shared lead pricing model.
Infrastructure cost as a unit economics factor: Stealth Labz's monthly operating cost dropped from a $6,312/month average to approximately $825/month after consolidating onto PRJ-01. Over 28 months, total build cost for all 10 production systems was $65,394 (contractors plus AI tooling, QB-verified). The market replacement cost for this infrastructure is estimated at $1,445,000 to $2,890,000 (based on FullStack 2025, Keyhole Software 2026, and Qubit Labs 2026 agency rate benchmarks). At $825/month operating cost processing 616,543 leads, the per-lead infrastructure cost is approximately $0.001 -- effectively zero as a unit cost at volume. That cost structure advantage flows directly into lead pricing competitiveness.
How It Works
Per-lead unit economics break down into five components:
1. Traffic acquisition cost (TAC). What you pay to get the consumer to your form. For paid search (Google Ads) in insurance verticals, cost per click ranges from $5-$50 depending on keyword and geography. At a 10% form completion rate, that is $50-$500 per lead from paid search alone. SEO content reduces TAC over time -- PRJ-07 has 10 SEO article guides built specifically to provide organic traffic, reducing long-term paid acquisition dependency.
2. Technology cost per lead. Your platform, hosting, compliance tools, and data services amortized across total lead volume. An operator paying $3,000/month for a stack of SaaS tools and processing 2,000 leads/month has a $1.50/lead technology cost. The same operator on consolidated infrastructure at $825/month processing the same volume has a $0.41/lead technology cost. At 10,000 leads/month, the consolidated infrastructure drops to $0.08/lead.
3. Revenue per lead (RPL). What the buyer pays. This varies by vertical, exclusivity, and quality. Auto insurance shared leads: $15-$45. Life insurance exclusive leads: $50-$150. The revenue per lead is a function of your distribution system's ability to match leads with the right buyers and create competitive bidding dynamics.
4. Return and reject rate. The percentage of delivered leads that buyers return for credit. Industry average return rates run 10-20% for shared leads and 5-10% for exclusive leads, according to Convoso's 2025 lead industry benchmarks. Every returned lead is revenue reversed plus the traffic acquisition cost already spent. Reducing returns through better quality scoring, deduplication, and blacklist enforcement has a direct margin impact.
5. Unsold inventory rate. Not every lead finds a buyer. Leads in low-demand zip codes, leads with incomplete data, and leads submitted outside business hours may go unsold. Aged leads (30-60 days old) can be sold at $1.25-$5.00 per lead -- a fraction of real-time pricing but better than zero.
The formula: True margin per lead = RPL - TAC - Tech Cost - (Return Rate x RPL) - (Unsold Rate x TAC)
An operator generating auto insurance leads at $25 TAC, selling at $40 RPL, with 15% returns and 20% unsold inventory: $40 - $25 - $0.50 (tech) - $6.00 (returns: 15% x $40) - $5.00 (unsold: 20% x $25) = $3.50 true margin per lead. That is 8.75% net margin -- before overhead. Scale that to 5,000 leads per month, and you have $17,500/month in contribution margin. Enough to run a business, but far from the 50% margins the whiteboard promised.
What This Means for Business Operators
The lead generation business is a volume and efficiency business, not a high-margin business. The operators who succeed are the ones who drive down three costs simultaneously: traffic acquisition (through SEO content and direct traffic sources), technology infrastructure (through consolidated platforms instead of SaaS stacks), and lead waste (through quality scoring, deduplication, and blacklist enforcement).
If your gross margins are below 20% in insurance lead generation, the problem is almost certainly one of three things: you are over-reliant on paid affiliate traffic (which takes 60-80% as commission), your return rate is above 15% (indicating a quality problem), or your infrastructure costs are too high relative to volume (indicating a technology problem). Fix the structural issue before trying to fix the marketing.
Related: Insurance Lead Quality: What Buyers Actually Want and How to Deliver It | How Ping-Post Lead Distribution Works: A Complete Technical Guide | Lead Generation Tech Stack: What Software You Actually Need in 2026
References
- IBISWorld (2025). "Insurance Lead Generation Industry Report." Gross margin and market structure data.
- Convoso (2025). "Lead Industry Benchmarks." Lead return rate and quality benchmarks.
- FullStack Labs (2025). "Development Price Guide." Software development cost benchmarks.
- Keyhole Software (2026). "Development Benchmarks." Agency rate comparisons.
- Keating, M.G. (2026). "The Compounding Execution Method: Complete Technical Documentation." Stealth Labz. Browse papers