Ask ten small business marketers the cost effectiveness of the various
sales lead generation methods that they use and half will put on a
guilty look and confess that they haven't taken the time to gather
the information necessary to figure it out.
This is unfortunate. Quality leads are the life blood of most companies,
and the funds necessary to generate them are limited. Like any other
significant expenditure, lead generation results need to be measured
and evaluated to ensure that you're getting the biggest bang for the
buck.
A look to the variety of data that we routinely gather to ensure that
sales people are effective draws an interesting parallel. Lead generation
deserves no less attention.
Fortunately,
developing the necessary metrics requires little effort beyond what
most marketers are already doing. And with a bit of history, they
provide excellent visibility into where promotional dollars will be
best spent.
The (too) Easy Way. Cost per lead is the most straight forward
measurement. Simply divide the cost of a magazine ad or trade show
by the number of leads that it generates.
The problem with this though, is that it assumes that all sources
generate leads of equal quality. This is not the case. Trade shows
for example, allow a level of interaction with prospects that is impossible
to achieve with magazine advertising or a web site. While a trade
show's cost per lead may be higher, it generates much higher quality
leads.
In fact there are differences in quality between most of the lead
generation methods used by B-B marketers. Because of this it is risky
to base promotional mix decisions solely on the cost per lead.
A Better Way. Cost per sale eliminates the problem of varying
lead quality by tying the measurement to the end objective… the sale.
At the surface the calculation seems simple. Divide the cost of the
lead generation method in question by the number of sales that it
generates. In practice though, it's more difficult. Questions arise
as to timing, which lead source to credit when multiple sources are
involved, the minimum dollar amount that qualifies as a sale, etc.
More important, cost per sale is influenced by two independent variables…
the effectiveness of the lead generation method, and the effectiveness
of the sales person following up the lead. While a significant improvement
over cost per lead, it leaves open the possibility of good lead sources
being devalued by a weak sales effort.
The Best Way. What's needed is a single variable measurement
that takes lead quality into consideration. Cost per qualified
lead accomplishes this. It adds a qualification step in between
receiving the lead and forwarding it to a sales person for follow-up.
Qualification involves calling each new lead and asking a brief series
of closed ended questions about their company's application, the timing
of any planned purchases, and the contact’s level of authority. Decision
makers with purchase plans within a reasonable time frame are qualified
leads.
While qualification may seem a luxury, it is in fact a cost saver.
Properly organized, it's a low to moderate skill level activity that
can be staffed at a fraction of the cost of using an outside sales
person to make initial contact. For additional insights see "Should
You Pre-qualify Your Advertising Sales Leads?" in the April
2002 edition of On Target.
The result is a reliable indicator of lead source cost effectiveness
which points the way towards optimizing promotional spending in future
budget periods.
About the Author:
John Grant is the founder of Take Aim, a marketing consultancy specializing
in new business development for small and medium sized B-B marketers
(www.targetedmarket.com).
He also publishes On Target, a bi-monthly newsletter focusing on issues
related to lead generation and management (see past issues and subscribe
at http://www.targetedmarket.com/newsletter.htm).
Read this newsletter at: http://www.MarketingNewz.com/2004/0322.html
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By John Grant