Cost vs Value
Two of the most important questions in marketing.
Question 1: “How much does it cost to bring in a new lead?”
Question 2:”How much money, on average, does each lead bring you?”
If you can answer these two questions, then you can ALWAYS bring in marketing campaigns that will make you money.
If you spend more capturing a lead than they bring in, you’ve got a problem.
In addition, lead value can be a great indicator for optimization. You can calculate the value of traffic from different sources (paid, social, etc.) and determine if certain channels generate higher-value leads than others. Optimizing your web experience may drive up your conversions—and your lead value.
First, define a “lead”
A lead is a qualified visit to your website—it is all about potential. This person hasn’t bought yet; he or she is a prospective customer who is interested in your product.
Create a simple formula
Even though lead calculation can get pretty complex, let’s look at a simple formula.
Average sale x Conversion rate = Lead value
Let’s say you sell sunglasses. Your average sale is $200 and your website converts at 2%.
$200 x .02 = $4
Each lead you get is worth $4. That means each person who stumbles upon your website—through search, clicking an ad, or from social media—has a value of $4.
Following along so far?
Lead value impacts marketing spend
Your lead value can influence your marketing budgets. In this example, you wouldn’t bother with a pay-per-click ad that cost you $7 per click. It would cost you more per lead than they are worth. On the other hand, you might invest in social ads that cost $2 per click.
Calculating lead value can be eye-opening. You might find that you are wasting money generating leads that are too expensive for your company. In that case, reallocate where you are investing in advertising.
Calculate lead value by source
To get even more detailed, you might want to calculate your value per lead by source. For example, you might sponsor a blog post whose audience seems to be right in line with your product. It might cost $6 per click. If that particular audience converts at 4% instead of your usual 2%, the extra money is worth it.
$200 x .04 = $8
For this traffic, your lead value is larger, so you can afford to spend a bit more on your cost per lead.
Thank your algebra teacher
Now that you’ve got a basic lead-value calculator, you can better determine return on investment with your marketing. When you have hard numbers associated with your leads, it’s much easier to determine your marketing success.
In addition, you might find that you are a prime candidate for optimization. Improving your lead’s experience may qualify more leads and lead to a higher overall lead value.