What is the value of a lead? And do all leads convert to customers in the same relative ratio?
Inbound marketing is the art of creating a web presence, including the website, search engine optimization, social media metrics that enable potential customers to find your business for the right reasons. It also includes creating content and offers that are designed to be helpful and informative for your prospect with the ambitious goal of nurturing the sales process.
While that is a helpful objective, the reality is that there is a lot of noise on the Internet, and cutting through that noise with clarity has become more and more difficult as the channels multiply and morph. Social media has evolved into a “must” instead of a “want” – in fact, if you are not on Facebook, your customers may wonder why? And you must listen as well. An unanswered tweet can do a lot of harm. So can responding to a derogatory post in a way that incites an argument.
With so many new rules and even new updates to Google’s search (Hummingbird), it’s important to fundamentally understand what the goals are for your marketing efforts, regardless of channel. The foundation of this is understanding what the value of a lead is.
Building an inbound marketing plan requires a blueprint for success, and part of that blueprint is understanding what the value of a lead is…
Not All Leads Are Created Equal
When building the marketing program, an experienced marketer understands that there are many more leads who are at the beginning of the buying process and that those prospects have different informational goals than those who are closer to the buying decision. There are many many more people searching for general information than those who have figured out what they actually want, and it’s fascinating to realize that the words used for search will parallel that progression.
You’ve heard of long tail keyword phrases? Well, even with Hummingbird, and the evolution of semantic search, it’s hard to believe that a fundamental understanding of keywords is no longer necessary to create effective marketing campaigns. Understanding that the purchasing search may progress along from a general term like “digital camera” to a more specific search like “SLR Digital Camera”, to an even more specific search “Canon 18 megapixel dslr” to become even more specific “Canon Rebel T5i” as the customer understands the options and gets closer to making the purchase.
So, its fair to say that the number of leads to equal a sale may be greater at the top of the funnel and smaller as the funnel gets narrower.
Matching Offer To Sales Funnel
Developing a process and the information that your prospects are seeking is essential to your marketing effort. Whether you are creating an advertising campaign or an online marketing program, a website design, mapping the customer journey is critical to your program’s success. So often, I find that new clients come to me with the idea of enhancing their website and “optimizing the website for Google search”, but that’s of little value if the traffic that comes is not converting. By converting what I mean is that ultimately, the prospect should become a customer.
Understanding your customer’s journey to the purchase decision is based upon a clear understanding of your customer. Creating a buying persona, and then evaluating the offers as they may be enticing to that persona is a good way to determine what the offers should be, and also, where they should fit along the selling spectrum. For example, at the top of the funnel, your customer may simply want to get information and would be unlikely to be willing to share their contact information. As they become more informed, your offers have more value, and matching the request for information to the funnel stage is a great way to optimize lead generation. If you ask for too much information at the beginning of the sales cycle, the prospect is less likely to submit the request. Starting off with a simple request for an email address (so you can email the report) is a much easier first step for a prospect to indulge in.
Also important to note is that you will have many more prospects than you will have true leads. As your prospect moves along the sales funnel, they become close to being a customer. There is a likelihood that there is more than one form this potential customer has filled in, and by utilizing smart forms, or by asking for more information as the value of the offer is greater, you can build a decent amount of lead intelligence before the sales call is made. Knowing what the prospect downloaded definitely improves the ability for a sales professional to direct the conversation to the needs of the prospect.
Calculating The ROI Of A Lead
While a formula to determine the absolute value of a lead is open to conjecture, there are some statistical ways that we can use to determine what the value of a lead may be. In fact, if you evaluate your leads by where the Call-To-Action may be within the sales funnel, you can determine the return for each of the landing page opportunities on your website.
Number of Leads adjusted for Conversion Rate
The first variable you should take into consideration in your calculation is how many leads it takes to convert a customer. Most sales teams can share how many cold calls they have to make in order to talk to a person. Of that number, on average they can also share how many they need to actually talk to to make an appointment. So, if you need to reach 10 people to make appointments with 4, you should also realize that of those four, perhaps only one will buy. So, if you worked, let’s say at American Express, you may have to make 100 calls to reach 10 people to talk to, then of those ten, schedule 4 appointments, then of those 4 appointments, one would be a sale. If you need to close one sale a week, you need at least 100 calls.
The conversion ratio works similarly. If you need 1,000 leads to get to 10 sales, then ultimately you either want to improve the number of the leads you are getting or the quality of the leads. The conversion of visits to leads to sales can be an important metric when evaluating the landing pages and offers for your website.
Multiply by Average Sale
Most organizations have an idea what the dollar amount of the average sale would be. If that is not the case, then use your sales logs to determine the total sales and then divide by the number of sales. The resulting number will give you a good idea what your average sale would be.
Adjust for Profit Margin/Cost of Sale
There is typically over head and expense that has to be accounted for. If you are using a keystone markup, you should figure that roughly 50% of your average sale goes to your cost of goods. If you did any additional marketing efforts then that should also be added to the cost or deducted from the profits.
Divide by Total Number of Leads
Now, take a look at the total number of leads that your website produces. If you took the first example of 100 leads to equal one sale, then this denominator would be 100.
Result = Lead Value
When you evaluate the result of the equation, you should have a good idea of the value of a lead. Keep in mind that this can change over time – as your marketing improves and your website improves, and you utilize A/B testing, you can actually increase the value of the leads because you are working towards a better system to aquire those leads.
Are All Leads Equal?
Generally, the leads at the top of the funnel taken independently of the entire funnel will turn out to be less valuable than the leads that are at the bottom of the funnel. Want to hazard a guess why? If you’ve correctly configured your landing pages and call-to-action offers, then you should have a stronger candidate or prospect for the offers at the bottom of the funnel than at the top of the funnel where they are kicking tires.
Inbond Markting ROI Formula
I’m curious if you have a system in place to evaluate your marketing efforts and if you know how the ROI of your leads has improved or deteriorated over time. Do you periodically take a look at your landing pages to continuously improve them? Let me know in the comments if you use this type of analysis or if you have a different formula that you find works for you.