Tuesday, February 21, 2012

What is the Value of a Lead?

It seems like it’s harder than ever to get your prospects interested, and turn them into real opportunities.

The issue is that your prospects have clearly changed, today more:

1.       In Control – leveraging more information sources than ever, especially the Internet, social media and collaboration groups, your prospects dictate when and how they want to be engaged, and when they do, are armed with a wealth of knowledge about potential opportunities, your solution and the competition.

2.       Overloaded – forced to do more with less, your prospects have less time than ever to engage with solution providers, yet at the same time, are inundated with dozens of vendor phone calls and emails each day.

3.       Skeptical – your prospect has heard it all before, so the same old product / solution pitches won’t work.

4.       Frugal – more risk adverse and with less budget, your prospect is more apt to “Do Nothing, than to say “Yes”.  Unfortunately, it takes a lot today to convince your prospect to part with precious funds and take the risk on your new proposal. They especially won’t say yes unless they see a quantified “cost of doing nothing” and know the project will have significant tangible benefits, significant ROI and fast payback.

Frugalnomics is in full effect, and as a result, marketing is harder than ever before, requiring more significant investments in more content, more channels and more collaboration.

As well, your buyers have changed, so you’ll need new content that is more personalized, provocative, and value-focused, to fuel their need for control, break through the overload, connect one on one, and address the economic focus.

Is it Worth It? The Value of a Lead
The new content and tools are likely to require an investment on your part, to develop the new content and interactive tools to meet new buyer expectations. So how do you justify the incremental investment it’s going to take to drive these new programs?

Calculations can get complicated because marketing is often a non-linear process, with multiple touches and influences ultimately driving and opportunity and sale.

However, we aren’t looking for the absolute contribution, just a conservative method to determine if the value of each lead the marketing program generates, so we can be sure it will be worth investing in, and a so we can begin assigning some value to the program once its up and running.

Although a simple approach, we’ll use Incremental Sales Revenue as the basic metric to estimate the value of the program:

Number of Leads Generated By a Campaign * Lead to Sales Conversion Rate * Average Deal Size = Incremental Sales Revenue

Two key figures drive the justification:

·         Lead to Sales Conversion Rate

·         Average Deal Size

These two metrics vary dramatically between companies, but using some industry average figures, let’s run through an example of a campaign that is estimated to generate 200 new leads per month:

·         Number of Incremental Leads Per Month Estimated From the Program= 200

·         Avg. Conversion Rate of Leads to Sales = 1.0%

·         Avg. Deal Size = $50,000 (will vary by prospect)

Applied in the formula, this results in:

·         Incremental Sales Revenue per Month = 200 * 1.0% * $50,000 = $100,000 / month

·         Incremental Sales Revenue per Year = $100,000 * 12 months = $1.4M

·         Avg. revenue per lead = $583 / lead

To calculate the net value of the campaign and lead to the business, it is important to not count the gross value, the sales revenue, but to adjust the sales revenue for the cost of this revenue. To do this, we use incremental margin, factoring in the cost of goods sold / cost of services for the deal sold, and any incremental sales, general and administrative overhead expenses for the margin. Using a 25% margin figure:

·         Avg margin per lead (at 25% margin) = $145 / lead

So what do your numbers tell you about the value per lead? Worth more or less than this example?
If you said the same or more, this would not be a bad program for you to invest in, especially if the campaign is more effective at connecting and engaging with today’s more challenging prospect, and moreover, if it can guarantee the number of leads. This would mean close to 200% ROI.

We have such a program for you, fueled by Alinean’s Interactive White Papers, which can be personalized for each of your prospects, to better attract, connect and engage - and with a guaranteed ROI.

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