Cost per Lead

What is Cost per Lead?

Cost per Lead is a measure of how much it costs you to gain a Lead for your business?

What is a Lead? A Lead is a person who has expressed an definite interest in your business, such as making an enquiry. A Lead may also be called a Prospect.

How do I calculate Cost per Lead?

First you must Test and Measure. We spoke about this last time.

Measure the number of Leads and the number of new Customers you gain from each Lead Generation strategy you employ in your business. Let’s have a look at some example figures.

What can you conclude from this chart?

These figures are an example only. In this example:-

‘Free’ Marketing

Referrals are free, but you have to Wow your customers with your service. This comes at a cost, but should be done anyway, not just as a marketing strategy, so no charge is applied here.

Cheap Marketing

Walk Ins ( leads walking in off the street ) are cheap, very cheap in this example. The cost of marketing to Walk Ins is the cost of the high street position above that of a location off the high street, and of shop front advertising.

Test and Measure store front marketing.

Expensive Marketing

Events and Advertising definitely need to be vastly improved or discontinued.

To be Worked On

Leaflets, Open Days and Direct Mail should be improved.

Do More Of

Your web site, hand outs and the eNewsletter appear to be working well.

Do more of these, or increase the frequency, and investigate using related methods of marketing.

Success

How do you know when a marketing strategy has worked? This depends on your budget Cost per Lead.

How much gross profit do you make from the average sale? Gross profit is sales revenue minus all costs of providing that sale including marketing and sales costs divided by the number of sales.

How much net profit do you make from each sale? Net profit is the sales revenue minus all variable and fixed costs divided by the number of sales.

Ideally your Cost per Lead budget should be an acceptable fraction of your Net Profit per Lead, but more practically it will be a fraction of your Gross Profit / Lead.

To work this out you need to know your Conversion Rate for Leads.

Successful marketing of your business happens when your Cost per Lead divided by your Conversion Rate is less than the Net Profit from each Sale. This is your marketing target.

Coming Soon

Both Acquisition Cost and Life Time Value have been mentioned so far. It is time to define them.

Acquisition Cost

Acquisition Cost is the cost to your business of marketing to, and selling to a customer; the cost of recruiting a new customer. This is the next step.

Life Time Value

You also need to know how much Sales Revenue and profit you make from the average customer. This is call the Life Time Value.

We will discuss Acquisition Cost next time.