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How Much Does a Sales ‘Lead’ Cost?

I have recently been evaluating lead generation campaigns and thought it might be helpful to refresh some practical ways to evaluate the real cost of a ‘lead.’ First of all, what is a lead?

I have recently been evaluating lead generation campaigns and
thought it might be helpful to refresh some practical ways to evaluate the real
cost of a ‘lead.’ First of all, what is a lead? A lead is a contact that
represents a real opportunity to (eventually) get a sale.  When a list supplier or other lead generation
engine sells me ‘qualified leads’, what am I getting?  Usually this means the supplier will provide
you with contacts that meet a basic set of criteria, such as geographical
location, job title, industry, company size, etc. In actuality, many suppliers
offer you very basic criteria, such as company size and geography; they don’t
get very granular. So how do you know whether these are good leads or not? Here
are some common methods:

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  • you ‘pre-qualify’ the contacts by virtue of your ‘offer’. Usually,
    you expose a message to give something away (e.g. white paper, webinar, product
    trial, etc.), providing the respondent gives you basic contact
    information.  The logic goes like this –
    if your offer appeals to someone, they will respond to your offer; once they
    do, you can conclude that this is a potential buyer. In practice, this is a
    very poor way to qualify a lead. Many people respond to an offer for a whole variety
    of reasons, even though they could or would never buy your product or service.
  • You provide a set of qualifying questions – only those
    respondents who answer the qualifying questions correctly are deemed to be leads;
    the rest can be discounted.
  • You provide the lead supplier with a stiffer set of criteria;
    such as ‘director or higher’ level IT personnel, companies over 1000 employees,
    the pharmaceutical industry, in North America. This sounds good, but the
    supplier will generally increase the lead cost for each criterion. In practice,
    this type of qualification pushes the lead price through the roof.

In practice, it is usually most cost-effective to simply
pre-qualify the lead with by your offer and then follow up with the larger
number of generated leads. However, when you do this, remember that the
overhead of tracking and engaging the larger number of leads also has a cost in
terms of time and money of your sales team. And, you need to make sure that the
cost per real lead is low enough to make the campaign successful. Let’s look at
an example:

Say you are trying to sell an add-on product to
Salesforce.com; you want to target sales and marketing professionals in the health
care market, that work in North American companies over 1000 employees. You create
a white paper that describes the challenges of managing sales campaigns in the health
care space and then you contract with a lead supplier to distribute this white
paper via email newsletter sponsorships and industry portals.  As part of the campaign, you create a questionnaire
of 4 questions that a downloader must complete to receive the whitepaper.  These questions will help qualify the
leads.  Now, assume you contract for 500
leads at $40 each.  That’s $20,000.  For these $20,000 let’s see how much a lead
really costs.

  1. From the list of 500 leads, only a percentage of them will
    answer the questions ‘correctly.’ The others don’t meet the criteria for a
    sale; e.g. they don’t use Salesforce.com, their job does not involve buying or
    using your type of product, etc.  For
    argument’s sake, let’s say 60% (or 300) of the downloaders meet your
    criteria. 
  2. Now, you try to contact the downloaders via email or
    telephone.  You run several campaigns and
    after a few months, you realize that you actively connected with 50% (or 150) of
    the leads.  These contacts represent the
    true leads.  How much did they cost you?
  3. What you paid: (500 leads @ $40) = $20000
  4. Number of ‘real’ leads: 500 x (60% qualified) x (50%
    actually contacted) = 150 leads
  5. So, $20,000 ÷150 = $133 per lead

Is a lead worth $133? Maybe and maybe not.  It depends on a lot of factors; either way, you
must be doing this kind of analysis. The only way you can build a strong sales
program is to work backwards from the number of deals you need, figure out the
conversion rates from leads to sales, and then calculate how many leads you
must be generating. Only then can you figure out how much you can afford to
spend on each lead.

About the author

A technology strategist for an enterprise software company in the collaboration and social business space. I am particularly interested in studying how people, organizations, and technology interact, with a focus on why particular technologies are successfully adopted while others fail in their mission.

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