Whether you are an industrial B2B company with a dedicated marketing team, or a small business managing your own marketing strategy, there are two important elements you must be aware of: your lead cost and your lead value. Your lead cost and lead value play a big role in managing a successful online industrial marketing budget. But, what exactly is lead cost and lead value? How do you identify them? And why are they important to a marketing budget?
Value of a Marketing Qualified Lead
Every transaction revolves around the value of a product. As a consumer, you make your purchasing decision based on your perception of the item’s value. The decision whether or not to buy a product is generally based upon three factors: Brand, Price and Percieved Value.
- Is your brand viewed in the market as an economy brand or a premium brand?
- Is your consumer buying primarily on price?
- What aspects of your product or service are percieved as valuable to your market?
Likewise, sellers place a monetary value on their product or service based upon their percieved value. Unlike consumers, sellers must ask themselves several questions before placing a value on their product:
- What was the cost of making our product/providing our service?
- What is the value of our product/service to consumers?
- How does the value of our product/service compare to our competition?
As a business owner, once you determine the value of your product, it's useful to determine the value of a lead. In other words, how much money would you spend on advertising your product to a single person in your target audience? For instance, if you own an industrial B2B company that sells branded paper products to the food service industry. What is a monetary value that you would place on signing a contract from a single business in your target audience?
Let’s say that you want to market your custom branded, paper cups to restaurants that sell hot beverages. You have a total campaign budget of $160,000 and of your target audience, you gain 320 leads from the campaign. You close about 11% of those leads and the average order totals $50,000 with an average profit margin of 20%. This leaves your lead value at $600.
Overall Marketing Campaign:
- Budget : $160,000
- Leads : 320
- Close Rate : 11%
- Lead Cost : $500
- Lead Value : $600
Since you are an industrial B2B company, it’s common that your customers remain loyal for a number of years. This would alter the lead value and the average sale amount to account for the lifetime of the business relationship without increasing the cost to market your product or services to that same lead.
Cost of a Marketing Qualified Lead
The cost of your lead should never be greater than your lead value. However, you also need to be cautious that the value is not outrageously higher than the cost you are willing to spend on an individual lead. It makes sense to narrow down your analysis into separate marketing channels within your campaigns to see the relative cost of each.
Perhaps, Pay Per Click Marketing leads were $125.00/lead whereas your Tradeshow leads came in at $300.00/lead. As you track this information over time, you will see what markets perform best in each marketing channel.
Using the same example as above, your revenue at the end of the campaign is $192,000. For an individual lead, you spent about $500 – about $100 less than the lead's value.
Breaking the campaign by spending:
- Tradeshow : $35,000
- Pay Per Click Marketing : $30,000
- Call Center : $80,000
- Content Development : $15,000
This is Leads | Close Rate:
- Tradeshow : 35 | 25%
- Pay Per Click Marketing : 83 | 18%
- Call Center : 202 | 5%
- Content Development : For this example, content development is a conversion tool not a lead source.
Now lets look at lead cost | lead value
- Tradeshow : $1000 | $1500
- Pay Per Click Marketing : $361 | $1439
- Call Center : $396 | $104
With this information we can start measuring marketing channels in comaprison to products and markets so we know where our money is best spent.
When determining your budget, you need to account for the major marketing channels where your target audience goes for information and solutions to a problem. These particular lead conversion opportunities are important, and your marketing budget should account for those major channels at a minimum.
Formulas Used In Calculations:
- Campaign Return = Total Leads * Close Rate * Average Sale Amount * Average Margin - Campaign Budget
- Lead Cost = Campaign Budget / Total Leads
- Lead Value = Campaign Return / Total Leads
Closed Loop Reporting
It is worth noting that implementing a closed loop reporting system as part of your marketing efforts is invaluable. Closed loop reporting ties the intial lead source to the final customer acquisition. For closed loop reportint to work you need a good CRM, marketing automation software and the ability to tie the two together. (As HubSpot Partners, we really love their toolset for this task).
There are basically 4 Steps to Closed Loop Reporting:
- Visitor is added to CRM. This will provide us with the original referral source. If the visitor is added from a website form submission, we can credit the referral to Social Media, Pay Per Click, organic traffic or whatever referral source is the lead came from.
- Cookie Tracks User Behavior. Once we have a cookie in the visitor's browser, we can see how and when they interact with the website and our makering and sales efforts. All there interactions are logged into the CRM/Marketing Automation Tool. Pages visited, emails opened, forms submitted, etc.
- Visitor is nurtured into a Sales Qualified Lead. Hopefully at some point during the nurture process, the visitor learns about your capabilities, is comfortable with your brand and takes the steps to talk to a sales representative.
- Sales Qualified Lead Becomes Customer, Original Source is Credited. Finally after the lead becomes a customer, we can credit the original source of the lead. You can imagine how effective a tool this can be when you are making decisions on where to spend your marketing dollars.
With some dedication and a little analysis, you can really start to break down your marketing channles and see where you are getting the most ROI for you dollars spent. You can also use it to measure channels from previous periods. For example, an industry specific tradeshow may be a necessity for your branding and positioning in that industry. Use this analysis to explore ways to improve overall responce from that particular show on a year to year basis.
Calculating lead cost an lead value is insightful and should be something every marketing department strives to achieve.