How Much Leads Cost

How Much Leads Cost

Lead Generation Featured Image

I review a lot of content on this topic and am amazed at what I find written about lead cost.

For example: “The average cost per lead across all the companies surveyed is almost $200 ($198.44).Admittedly, that’s a useless statistic, as these figures vary quite dramatically depending on industry, company size, etc.”  Others stated that the range is between $35 – $100 for a B2B lead. Of course, it depends on what you are selling, but common sense tells you that B2B leads for a complex sale (that are worth a sales rep’s time) are probably going to cost more than $200.

Look at this data from an actual PoinClear teleprospecting client:

  • One source of leads was PointClear—we sent them only qualified leads and nurtured leads—at an average cost of $1,357.25.
  • Five additional sources of leads were from other sources, which included some qualified leads and nurtured leads, but which also included many, many more which were termed just plain “leads” (not even scrubbed, let alone qualified and nurtured) and a lot of “scrubbed” leads which were also not qualified and nurtured. Leads from these sources, most of which will land in a black hole, all cost more than the PointClear qualified and nurtured leads.

This table compares the cost per lead on outbound (PointClear Prospecting/Nurturing) to several other sources of inbound leads.

  • The EVP of Sales at this client, a big division of one of the world’s largest software companies, said that he received zero qualified leads from marketing—except for the PointClear outbound leads.
  • Marketing on the other hand stated that they had provided sales with more than 4,000 leads.

This problem is classic and represents the disconnect between marketing and sales:

  • Marketing is focused on the quantity and cost of the leads.
  • Sales is focused on the quality of the leads and revenue generated.

Marketing considered the content syndicator download “leads” to be “too valuable to stop buying” (at $23.15 per gross lead). Because prequalifying the leads adds cost, marketing’s solution was that they would just quit prequalifying the leads and send them straight to sales. What do you think the chances are that sales will cull through 3,117 suspects to find 40 prospects? Right. Zilch. Yet from one source alone marketing spent $72,158 per quarter on leads that were sent to sales and ignored. What is the “right” price to pay for leads? Here are some scenarios to review:  

Lead Rate Break-Even Analysis

To convert to a SaaS solution, calculate lifetime net present value of the average deal.

While this is a simplistic approach, you can see the extent to which average deal size, margin and the percent of revenue that is spent on marketing impacts the allowable cost per lead. Only the $50,000, 60% margin, 15% allowable marketing cost ($1,500 target allowable $ per lead) scenario works for proactive outbound marketing. You can’t cost effectively buy quality leads for low price and low margin offers. I go through an exercise like this with prospects and clients as we work through whether our services will result in a successful outcome. 

 

Article Produced By
Dan McDade

https://www.pointclear.com/blog/how-much-leads-cost

How Much Should You Pay for a Sales Lead?

How Much Should You Pay for a Sales Lead?

         

 

When planning a B-to-B lead generation program,

you need to deliver leads to your sales team at an affordable price. A neat way to determine in advance how much you can spend on a lead is to calculate the allowable cost per lead for your campaign. This number can then be used as a benchmark for evaluating campaign investments, and deciding which ones are likely to work. If a campaign is looking like it’s not affordable, then you’ll want to make some tweaks, like find a stronger offer, or narrow your targeting.

Begin by calculating your cost per inquiry. Assemble the total direct campaign costs, including all fixed and variable costs that can be directly attributed to the campaign. Include creative and pre-production work, cost of developing and producing content, and the normal variable costs of campaign development and execution. Divide this amount by the number of expected campaign responses, and voila! There’s your cost per inquiry.

Then, estimate the costs associated with qualifying a lead. Don’t try to determine this number on a per campaign basis — it’s too hard. Instead, calculate an average qualification cost for inquiries over a set period, such as a year. Gather up all your inquiry-handling costs, including the direct headcount involved in inquiry capture, fulfillment, qualification, and nurturing. If your back-end processes are outsourced, gathering the data is as simple as adding up the bills. After you have a number for the year, divide it by the number of inquiries handled in the year. This number will serve as your average cost to qualify an inquiry.

Finally, go talk to your counterparts in finance and sales to gather several data points. You need the average order size, namely, the total revenue divided by the total number of orders. (If this number swings wildly, do the calculation by product category.) You need the margin (or its opposite, the cost of goods sold) and the direct sales expense per order, calculated by the total sales expense divided by the total number of orders.

Let’s look at an example of how this works. The chart works through some hypothetical numbers to arrive at a cost of lead closed and an allowable cost per lead, and compares the two. Your goal is for the cost of a closed lead to come out lower than the allowable — obviously. If it’s higher, you lose money on the campaign. To get to Allowable Cost per Lead, it’s not actually necessary to know how many inquiries will be generated, qualified, and converted. But you do need to know the cost per inquiry, the cost to qualify an inquiry, the qualification and conversion rates, the net margin per order, and the direct sales expense per order.

 

Comparing your cost per closed lead to your Allowable Cost per Lead: A hypothetical example
Cost per inquiry (campaign cost/# responses) $100
Average cost to qualify an inquiry (lead management costs/inquiries per year) $50
Total cost per inquiry qualified (cost per inquiry + cost to qualify) $150
Lead qualification rate 25%
Cost of qualified lead (cost per lead/qualification rate) $600
Lead conversion rate 30%
Cost of a closed lead (cost of qualified lead/conversion rate) $2,000
Average order size (annual revenue/# orders) $10,000
Net margin per order (revenue per order x margin, 60%) $6,000
Allowable cost per lead (net margin per order – direct sales expense, $3,500) $2,500

 

In this hypothetical example, say the campaign spent $15,000 and generated 150 inquiries. Whatever the cost and the responses, the important number is the cost per inquiry. Here, we have hypothesized it as $100. Separately, the average cost to qualify an inquiry for the year was calculated at $50. We divide the qualification rate (25 percent) into the total cost per inquiry qualified ($150) to calculate the cost of a qualified lead. Then, we divide that by the conversion rate (30 percent) to get the cost of a closed lead ($2,000).

This number is then compared with the allowable cost per closed lead ($2,500), which is a simple calculation of the net margin per order minus the cost of sales (hypothetically set here as $3,500). In this example, the campaign looks promising, because the expected cost per converted lead is $500 less than the Allowable Cost per Lead. If you put this information in a spreadsheet and play with it, you can quickly see how much leverage there is on the back-end, meaning after the inquiry has come in and you are working it through qualification and nurturing. A few efficiencies on qualification rate and conversion rate work wonders on campaign ROI.

Article Produced By
Ruth P. Stevens

Ruth P. Stevens consults on customer acquisition and retention, and teaches marketing at companies and business schools around the world. She is past chair of the DMA Business-to-Business Council, and past president of the Direct Marketing Club of New York. Ruth was named one of the 100 Most Influential People in Business Marketing by Crain’s BtoB magazine, and one of 20 Women to Watch by the Sales Lead Management Association. She is the author of Maximizing Lead Generation: The Complete Guide for B2B Marketers, and Trade Show and Event Marketing. Ruth serves as a director of Edmund Optics, Inc. She has held senior marketing positions at Time Warner, Ziff-Davis, and IBM and holds an MBA from Columbia University.