How Much Should a Lead Cost?
Your cost-per-qualified-lead is higher than you think!
Virtually every aspect of our lives is counted: From the calories we consume (too many), to the steps we walk (too few), to the number of tweets we send in a day.
Businesses are no exception. Supply chain statistics, number of days inventory in stock, A/R aging and hundreds of other statistics are sliced and diced every day. On the top line, sales people have quotas, marketing people have budgets and executives are driven by quarterly results. But with all that measuring going on, the most essential element of the cost of a sale, however, is largely unknown.
The gap between marketing and sales
This may be a generalization, but sales people and marketing people are often at odds. Sales people complain about the quality of leads produced. Marketing complains that they never get feedback on leads; and that the field fails to follow-up on the “good leads” marketing creates. Unfortunately, both sides have a point.
The fact is, fewer than 7% of leads passed to sales by marketing should be. That means sales must contact 100s of companies to find a handful of real leads, which honestly is a problem. Great sales people—also called hunters—are generally not great prospectors (also known as beaters). So, when marketing sends 100 unqualified leads to hunters, it’s likely none of them will be followed up on. If a beater gets hold of them, there’s a better chance opportunity will be found—but of course, they won’t be effectively sold.
Even when sales takes the time to plow through a stack of leads, and finds a good one or two, they’re not very likely to pass credit along to marketing. So from marketing’s perspective, all leads end up in a black hole.
As a result of this dynamic, companies default to “buying leads” for the lowest possible price. And they end up measuring marketing by quantity, not quality—a vicious cycle with numerous drawbacks. What can you do?
Know the numbers
You probably know, or can find, the cost of each campaign, and the number of responses each yielded. For example, a $50,000 budget could be spent:
Hosting a webinar and inviting 20,000 individuals to attend.
Being generous, we’ll assume a 1% response on these efforts, so webinar invitations, and follow-up, yield approximately 200 responses. (Remember, responses don’t equate to leads—they still must be qualified.)
Alternatively, executing a multi-touch, multi-media, multi-cycle outbound calling campaign—reaching out repeatedly by phone, email and voice mail across several sales cycles for the same budget against 1,000 qualified prospects.
A good rule of thumb is to assume that 5% of your addressable target audience will have an actionable interest in your offer. If we apply the 5% short-term percentage to each universe described above, we yield 10 (5% of the 200 webinar responses) and 50 (5% of the 1,000 qualified prospects) short-term leads respectively.
So, the cost for each marketing effort? The cost-per-qualified-lead for the webinar is $4,762. The cost-per-qualified-lead for the outbound calling is $1,000.
The above cost assumptions associated with a single (or limited) touch-point campaign are consistently optimistic.
The cost assumptions associated with a multi-touch, multi-cycle, multi-media campaign (with a focus on outbound calling), directed toward a segmented audience with a high propensity to buy are consistently conservative. You can easily calculate the real cost per qualified lead for your business using the following table:
| Webinar Campaign | Multi-Touch Campaign | |
|---|---|---|
| Cost Per Campaign | $50,000 | $50,000 |
| Number of Targets | 20,000 | 1,000 |
| Response Rate | 1% | 5% |
| Number of Responses | 200 | 50 |
| Qualified Lead Rate | 5.25% | 100% |
| Number of Qualified Leads | 10.5 | 50 |
| Cost-per-qualified-lead | $4762 | $1000 |
So, how much should a lead cost? More than you think, but probably a lot less than you are paying.