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Why Cost per Lead is a Bad Way to Measure Your Return on Lead Generation Efforts

Posted by Dan McDade

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on Aug 11, 2016 11:30:00 AM

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How NOT to Measure Lead Gen EffortsShifting to Outcome-based Accountability and Revenue Metrics

While cost-per-lead measurement has been the de facto favorite for evaluating marketing programs, we are seeing radical and positive shifts in how marketing is evaluating qualified leads.

For one, there is greater recognition that marketing should deliver qualified leads that are fully vetted, closeable and likely to convert through the buyer’s journey.

Marketing must align its B2B lead generation activities and resources with deeper-in-the-funnel outcomes. Some trends in the industry:

  • Marketing’s mission includes direct responsibility for a higher portion of revenue.

  • Depending on a marketing resource’s role and level, parts of compensation can be tied to performance metrics like overall revenue and deeper-in-the-funnel outcomes.

  • Marketing KPIs are moving from top-of-the-funnel expense metrics to deeper-in-the-funnel actionable indicators like pipeline deals.

For these trends to positively impact overall sales success, I need to re-emphasize that qualified leads must be fully vetted, possess the potential for high close value, and be highly convertible. The reality is qualified leads with these characteristics will cost more and will not fit inside cookie cutter cost-per-lead measurement criteria.

In the search for the holy grail of marketing KPIs, we want ones that do the following:

  • Demonstrate the impact of early-stage activity on later-stage outcomes.

  • Correctly emphasize the ROI value of qualified leads over their cost.

  • Tie B2B lead generation activity to overall revenue and profits.

  • Identify the most successful marketing initiatives.

  • Deliver insights that can be leveraged to run future high-return activity.

The cost-per-lead metric accomplishes none of the above.

Cost-Per-Lead

Cost-per-lead is not the correct metric for measuring marketing initiative success for the following reasons:

  • It incorrectly incents volume over quality.

  • It incorrectly emphasizes cost over ROI value.

  • It doesn’t deliver high quality, high value or more convertible leads.

  • It adds costs when sales discovers many leads don’t meet criteria.

  • It is appears too early in the funnel to be meaningful in measuring outcomes.

  • It is not actionable in planning and predicting future investments.

So if not cost-per-lead, what are the right marketing KPIs?

Here are the marketing KPI’s that I recommend:  

Lead-to-Pipeline Conversions (MQLs-to-SALs)

The lead-to-pipeline conversion ratio demonstrates solid marketing and sales alignment: acceptance demonstrates sales’ confirmation that these are the qualified leads they need and expect.

Lead-to-Opportunity Conversions (SALs to SQLs)

This ratio confirms that marketing is on target with delivery of qualified leads that convert to forecastable opportunities.

Cost-Per-Opportunity (Cost-Per-SQL)

A more accurate depiction than cost-per-lead, cost-per-opportunity ties costs to outcome-based performance. Opportunities in this stage act as confirmation that leads are meeting requirements around quality, value and convertibility. Meeting these thresholds can naturally require greater investments than programs evaluated on a cost-per-lead basis.

ROI

This is where the dust settles and high level conclusions can be drawn—at both the collective and individual initiative level. It’s fairly common when all is said and done to find that leads, opportunities and sales that cost more do so for a reason: they generate greater marketing ROI.

The right KPIs go beyond cost-per-lead to reveal the B2B lead generation programs and investment levels needed to meet corporate growth and revenue targets, as well as investor and analyst expectations.

Concluding Comments

Selecting and applying the right marketing KPIs are driven by the nature of the sale, how a lead is defined, and the compelling need to evaluate B2B lead generation activity based on lead quality, lead value and lead convertibility. For these reasons, deeper-in-the-funnel, outcome-based numbers are required. Only these types of metrics can be successfully leveraged to plan future initiatives that can be predicted—based on a track record—to help sales sell more, sell better and sell faster.

I might also add a comment on how much a complex sale lead should cost. More than you think, but probably a lot less than you are paying when all factors are considered. Is it possible to create high-quality, high-value and convertible leads to support a field sales force selling a $100,000-plus solution for $350 per lead? Frankly, no. Over the past 20 years, the average cost-per-opportunity for a relatively complex sale has ranged from the high triple-digit to low four-digit range—and these programs returned excellent ROI. Companies that reduce budgets, increase lead quotas and dump more poor quality leads on sales faster than ever before are shooting themselves in the foot.

I encourage you to join with me to put the final nails in the cost-per-lead coffin and affirm it is not an acceptable metric for measuring the success of marketing investments for the B2B complex sale.

Let’s make 2016 the year to embrace marketing KPIs that are outcome-based, strategically predictive, and fully aligned with both sales success and overall revenue generation.

Let us help you meet your revenue goals.


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Topics: Lead Generation, Cost Per Lead


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