Lead generation: calculate the cost per lead
As a B2B marketer and/or entrepreneur, you are constantly looking for new and affordable ways to generate interesting sales leads for your colleagues from the sales team.
Some marketing techniques that are available to you include: sending direct mailings, conducting a telemarketing campaign, sending e-mails, or online advertising.
When selecting a campaign mix, the fact that channels can differ in terms of costs, returns, and quality of generated leads is often overlooked. Therefore, it is sensible to thoroughly consider the prospect for investment prior to a new campaign. The central question is: What is a sales lead, and how much can it cost? In this article I answer these questions using a simple numerical example as a reference.
What is a sales lead?
There are numerous definitions of the term 'sales lead'. However, to keep this explanation from becoming unnecessarily complex, I will use the following description for this article:
A sales lead is a potential customer who meets the profile of your ideal customer based on job title, company size, and (optionally) industry in which they operate.
For example:
- An HR manager in a healthcare institution with a size of 50-200 employees, or
- An IT director at a business services provider with more than 20 employees.
This simple definition allows you to establish a clear understanding with your sales colleagues about which leads do or do not meet the 'sales lead' criteria.
Once this agreement is reached, the next step is to calculate the maximum 'cost per sales lead'.
What is the maximum price of a sales lead? [calculate cost per lead]
Would you like to know how to calculate the cost per lead or cost per sales lead? Below is your answer.
To calculate the cost per lead accurately, it is good to have the following information:
- What is the average revenue per customer (Lifetime Customer Value)?
- What is the average margin per customer (as a percentage of revenue)?
- How many sales leads do you need to acquire one new customer (conversion rate)?
Once you gathered this data, you can use the following formula to calculate the maximum cost per sales lead:
(Lifetime Customer Value) x (margin) x (conversion rate lead to customer)
Above formula I explain with below calculation example:
For a supplier of ERP software packages, the average Lifetime Customer Value (LCV) is € 50,000. The average margin on a customer is 20 percent, and the sales team requires 20 sales leads to acquire one customer.
Therefore, the maximum cost per sales lead can be:
€ 50,000 x 0.20 x 0.05 = € 500.00 per sales lead.
Using this amount, you can make a good estimation for your lead generation campaigns: how much budget do you need, what is the minimum quantity of leads required to achieve the minimum desired return, and which marketing agency can or is willing to provide solid guarantees based on your maximum cost per sales lead?
