Lead Gen: Why a Lower Cost Per Lead Costs More in the Long Run
Cost per lead is an important marketing metric that helps you plan your marketing spend. But what is the right price of an inbound marketing lead? $5? $500?
First, let’s understand the Cost Per Lead Formula
Cost Per Lead (CPL) = Marketing Spend / Total New Leads
Cost per lead calculates how much money (and effort) it takes to get a new lead into your CRM.
You can purchase a list or do this via inbound marketing, but your cost per lead is likely to vary.
Weighing the Cost Per Lead: Price vs. Quality
Would you rather have a lead that cost $1, or a lead that cost $5? The easy answer is $1, of course a lower cost per lead is better! But, of course, it’s not this simple.
Let's take a look at the cost per lead for two companies….
Company A: Cost Per Lead = $1 | Company B: Cost Per Lead = $5 |
Company A’s campaign is an ebook titled “How to save time generating monthly accounting reports”. This educational offer targets prospects early in the buyer’s journey, prospects in the Awareness stage. $10 Marketing Spend/10 New Leads = $1 cost per lead | Company B’s campaign is promoting an online self-assessment tool that determines if upgrading accounting software is right for the prospect. This offer is for prospects further along in the buyer’s journey, prospects in the Consideration stage. These prospects are beyond finding work arounds in the accounting process and are actively considering alternate solutions $50 Marketing Spend /10 New Leads = $5 cost per lead |
How to tell which cost per lead is better?
The prospect’s stage in the buyer’s journey is the key variable.
Is a qualified lead a warm body, or is it a prospect with the willingness to buy?
Company A Lead: Awareness Stage of the Buyer's Journey
This lead is going to need more nurturing — a sales call out of the gate would scare them away. They need to be nurtured with more touch points - a drip campaign, other offers, blog posts. A sales call is far down the line.
Company B Lead: Consideration Stage of the Buyer's Journey
The lead from Company B is way more ready for call from a sales person. “Hi, I see you used our assessment tool, how did the results resonate with your feelings about your accounting platform?” Since the prospect is considering a solution, this conversation makes sense to them.
To recap: The lower cost per lead is going to take more nurturing; The higher cost per lead is more ready for a sales conversation.
Your Next Step: Calculate Customer Acquisition Cost
Customer Acquisition Cost factors in the time and cost it takes to move the lead through the buyer’s journey and seal the deal. This includes additional marketing like drip campaigns and time and cost for the sales team to win the sale.
Sales and Marketing Cost ÷ New Customers = Customer Acquisition Cost
For Company A, the Customer Acquisition Cost is $500.
For Company B, the Customer Acquisition Cost is $450.
Next correlate Cost per Lead (CPL) to Customer Acquisition Cost (CAC). If the higher CPL correlates to a lower CAC, the higher cost per lead is also a better sales qualified lead.
Calculate Cost per Lead and Customer Acquisition Cost on a regular basis
Calculating these marketing metrics on a regular basis (monthly, at the least), will help you keep on top of your Marketing ROI. It's important to know what content strategies are profitable in generating sales qualified leads.
Ask Your Sales Team About Quality of Leads From Different Marketing Channels
Automated lead generation tools and CRMs are wonderful in collecting new leads, flagging their interests, and helping your sales team follow up. But when measuring how qualified a lead really is - the stories from your sales team can often provide deeper insights to your metrics.
Keep conversations about your marketing campaigns and marketing leads alive with your sales team so you can keep abreast of how well your marketing is working - and any new questions raised by prospects.
