Cost per lead kills companies because there is a very basic conflict of interest: One department sets quantity standards, while another department sets the budget and another group is responsible for implementing the budget and driving potential prospects in the door. This lead generation group has the responsibility to meet the quota set for quantity of leads generated. They can generate that number, but must sacrifice quality. If they generate the right number of leads they did their job and get the bonus. However, if that same group decides to focus on quality and not quantity they might generate fewer leads, but cause more bottom line revenue, yet they do not receive any reward.
The fallacy of measuring the success of a lead generation campaign solely based on CPL is seen in the relative in elasticity of Cost Per Acquisition across industries. There is an expected wage for a good farmer, or sales executive and you just won’t be able to lower that wage to a point that will allow for the CPL to go below the average in this relatively efficient market. The other option to reduce CPL is to generate more leads per sales person and again this is a relatively inelastic number. Sales cannot make 175 calls per day, rather 100 is a great benchmark. Lead generate firms can no more overcharge companies for their services than they can decrease the CPL associated with their clients industry.
What can you do to effectively price the value of a lead? Know the Numbers:
- Find the cost of what the campaign would be. $50,000 = 20,000 direct mail pieces, or will invite 21,000 individuals to a webinar.
- Being generous we will assume a 1% response yielding 200-210 interested prospects.
- Alternatively you could execute a multi-touch, multi-media, multi-cycle campaign for the same budget against 1,000 highly qualified suspect companies.
- A good rule of thumb is to assume that 5% of your addressable audience will have an actionable interest in your offer. Applying this percentage and we yield 10, 10.5 and 50 short term leads, respectively.
- The following costs per short-term qualified lead results: direct mail ($5K), webinar ($4,762) and multi-touch, multi-media, multi-cycle campaign ($1K)
These cost assumptions are consistently conservative, if you don’t believe me please calculate the real cost per qualified lead for your business and you will be surprised.
Calculate and agree on an acceptable cost per qualified lead and do not accept cost per response as a substitute. Only the cost per qualified lead will give you a clear picture of your return on each program. Basing decisions based on cost per response versus cost per qualified lead will result in cascading inefficiencies along the sales supply chain. Finally – hold sales accountable to every lead and add every lead to the forecast and take no lead off of the forecast without sales management approval. So How Much Should A Lead Cost? Answer: More than you think, but probably a lot less than what you are paying.