If you know the answer to this question, you’re well on your way to marketing success.
If you’re not sure what I mean when I ask, “What’s a lead worth?” then let’s talk it out for a minute. This could dramatically change the way you do business.
Calculating the Value of a Lead
Here’s what you’ll need to know to determine the value of a lead:
Sales conversion rate (or “close rate”): The total number of leads divided by the number of closed leads. So, for example, if you have 100 leads come in and 10 close, then you have a 10% sales conversion rate, or close rate. Note that this is an offline conversion rate, not one that occurs online.
Average sale value: This might be a hard one for some companies, simply because they carry more than one product line. For example, some leads might be for products that sell for $30,000, and some for turnkey solutions that cost only $250. If that’s your situation, it might be easiest to consider just the average of one product line for starters.
To simplify this illustration, we’ll say that a sale has an average value of $1,000.
So, now that we’ve dug through sales records and web data, and done some quick math, here’s what we have for our example numbers:
Sales Conversion Rate: 20%
Average Sale Value: $1,000
Now multiply the close rate by your sale value to get your average lead value:
20% x $1,000 (.2 x 1000) = $200.
Ok, so what?
Well, now we have the average value of a lead, which means you’re a step closer to determining whether your marketing efforts are returning what you need them to. You’re empowered to make decisions based on data, not on hunches and gut feelings.
For example, if you’re running paid search and it’s costing between $185 and $220 to capture a lead, then you might need to consider ways of pruning the account.* And if your email efforts only cost about $35 to capture a qualified lead, then you will want to do everything in your power to increase those efforts and push every boundary you can. You can measure the value of a channel (email, PPC, organic search, etc.) instead of having to judge the website as a whole based on your top line.
Once you know the value of a lead, then you have a hard number to use as a measuring stick, and it can inform any number of business decisions. That is why you need to what a lead is worth.
Check out Part 2 to see how the performance of your website plays into this whole equation, as we look at website conversion rate and how it can have a compounding effect on your sales.
* If you are running your own AdWords account and think you’re missing opportunity, considering letting Pryor Consultation perform an AdCheck account audit on your campaigns. We have a proven track record of finding hidden value and implementing improvements that will quickly result in returns.