Whether you’re planning your lead generation strategy or analyzing campaign results, strike “cost per lead” from your vocabulary. In online marketing, just as in life, you get what you pay for.
Seeking a low cost-per-lead sets you up for the wrong goal. Your real goal should be to win a profitable customer at the lowest possible cost.
The metric you want to focus on is cost per acquired customer.
But first, make sure you understand the lifetime value of a customer—a key, yet often overlooked, concept. Looking at revenue from a one-time transaction viewpoint is a flawed assumption and leads to selecting poor-quality leads.
The lifetime value (LTV) of a customer, according to the Database Institute’s website, is “the expected profit that you will realize from sales to a particular customer in the future. Although it builds on past customer history, LTV is all about the future. It is based, primarily, on the customer’s expected retention and spending rate, plus some other factors that are easy to determine.”
Use your customer’s LTV as a gauge for what a truly qualified lead is really worth in your customer acquisition program. Then, for each marketing buy, be willing to pay more for the programs that have effective conversion rates. In the end, you could care less about the cost of a raw lead--you want a profitable cost per acquired customer!
Clearly define what a lead is and set the price you’re willing to pay for it according to how deep in the conversion funnel it is. A name from Hoovers is not worth nearly as much as a contact that completed a form and requested more information. And that lead is not worth as much as a prospect who has agreed to an in-person demonstration.
Keep in mind that leads from different sources convert at different rates. A higher cost lead may convert at twice the rate of a lower cost lead, making it more valuable.
Setting up a program to generate profitable leads begins with a close look at your business model. What are the telltale qualifiers for your best prospects? For example, for financial services, it might be net worth. For pharmaceuticals, it might be age. What are your close ratios? Expect to pay more for better or deeper leads.
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