Understand the price you are paying for your leads and then optimize.
Document the cost per lead is the fourth of 7 Truths about Sales and Marketing that CEOs need to know. This post is part of a series about the CEO’s role in eliminating wasted marketing spend and increasing sales results.
In the last blog in this series we discussed the need for marketing to be more accountable for driving revenue. Today we will discuss how to document and then optimize the cost per lead, including the Sales Accepted Lead, the Sales Qualified Lead and Closed/Won business.
Key to documenting and then optimizing cost per lead (plus SAL, SQL and closed deals) is first making sure that the agreed upon definition of a lead is met at each stage of lead progression. If you haven’t gained mutual agreement of what a lead is in your organization, determining the cost of a lead is next to impossible—there’s no way to measure. So start by making sure everyone in your sales and marketing organizations know the answers to the following questions:
- What constitutes a marketing qualified lead? Does this lead meet your industry, organization size and additional criteria required? Have decision makers and influencers been identified, their authority confirmed and their agreement to engage secured? Is the appropriate business issue, compelling event and sense of urgency confirmed? Only if the answers are “yes” to these questions, do you have a lead that you can put a price on.
- What determines that a lead will be accepted by sales? Have additional decision makers been identified? Have all contacts been engaged? Has a generic solution been agreed upon? Is there a short list in place? Has the decision process and timeframe been uncovered and documented? Only if the answers are “yes” to these questions, do you have a sales accepted lead that you can price.
- What will it take for an SAL to be considered qualified by sales? Has a custom solution been agreed upon? Is the lead likely to close in one sales cycle? Have the deal specifications been finalized? Is the budget finalized? Only if the answers are “yes” to these questions, do you have a sales qualified lead that you can price.
- Has the deal closed? Only if the answer is “yes” do you have a closed/won situation that lets you calculate the cost of the getting the deal.
Even experienced marketing leaders often believe that a company in the correct industry, at the correct size with perhaps one other criteria met (such as “North America”) is sufficient to send to sales as a lead. I tell them that they need a whole lot more information than that (decision makers and influencer data and business issue, compelling event and a sense of urgency) to call a lead sales-ready and worth sales’ time to pursue. My opinion is that you not only need to meet Industry and Firmographic criteria, you also need as criteria to qualify a lead and call it “sales-ready.”
True leads require a lot of work—and that work doesn’t come cheap. A download from a content syndicator is inexpensive, yes, but it is not a lead. Let me give you a real-life example of this—one that is repeated over and over again in most companies. Over the past year our clients’ marketing department generated thousands of “leads” from many sources with the most preferred source called “Downloads from Content Syndicator”—see table Lead Source Analysis below. The marketing team was thrilled with their results. Sales executives, however, were not so thrilled. During the year, marketing spent more than $100,000 driving thousands of so-called leads—while sales reported that they got absolutely nothing of value from marketing. So while the leads were cost effectively generated, none panned out, and all money spent was wasted.
A deeper dive points to the fact that the relatively low cost per lead was offset by the relatively poor quality of the leads as indicated both by the percent of qualified leads generated, 1.28% as a percent of raw leads, and the overall percent of qualified companies. In fact, proactive outbound prospecting produced the most cost-effective method of highly qualified sales opportunities while other sources cost substantially more—as much as two to nine times more.
Lead Source Analysis (actual results for undisclosed client)
It is highly likely that a substantial portion, if not all, of the marketing spend results in very little impact on revenue. While it can be difficult (due to discussions over “attribution,”) it is possible to isolate and then optimize cost per lead, per sales accepted lead, per sales qualified lead and per closed won deal with a little work—and it well worth it.
Using industry benchmarks, the cost per B2B lead, SAL, SQL and closed deal are approximately as follows:
Note that the costs from Downloads from Content Syndicator are infinite. Those leads were never followed by sales—and marketing, stating that they were too important a source of leads, continued to dump them on the field regardless. This lead quantity over quality action by marketing is killing the return on marketing investments in many if not most companies.
The lesson learned…good leads aren’t cheap, but they’re the ones that deliver value to your company.
What has your organization done to document the cost of leads … and optimize that cost?
For more information on documenting the cost of leads, and optimizing that cost, read the white paper “How Much Should a Lead Cost?” (available here).
The next blog in this series introduces the Judicial Branch—the best way to eliminate finger pointing between marketing and sales, and keep leads from being ignored by the field.