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To make data-based decisions when it comes to budget, we need to start by defining what a lead means. A lead is a person who has somehow chosen to share their information with your company. It can be an email address, name, or phone number. Figuring out how much a lead costs is simple math: Cost/Number of leads = Cost per lead. However, that number in itself does not give us enough information to make informed decisions about our budget. We need to look at other factors, such as the quality of the leads, the conversion rate of leads into customers, and the lifetime value of a customer. Only by taking all of these factors into account can we make data-based decisions about our budget.
Count on sources that provide leads – meetings – customers
In order to get relevant numbers, you have to check the source of the leads. This requires a system that can track where contact is coming from. You should break down costs for the various channels such as AdWords, LinkedIn, Facebook, etc. Annually, you can also mix in costs for suppliers as well as salaries divided by total revenue from customers you can link to digital investments. For example, if you spend $1,000 on AdWords and that generates 10 leads and those 10 leads result in 1 customer, then your cost per lead from AdWords is $100. LinkedIn may be more expensive at first glance, but if LinkedIn generates 20 leads and those 20 leads result in 2 customers, then your cost-per-lead from LinkedIn is only $50. So even though you are spending more money on LinkedIn, it is actually generating more customers at a lower cost-per-lead, making it a more effective investment.
Leads vary in quality. A company can bring in 10,000 leads, but if only 1 of these becomes a customer, you should review your strategy. The more exciting numbers appear if you start measuring what a meeting or booking a demo costs until they become a customer.
ROI of 1,100%
In any business, ROI is crucial. It would be foolish to invest in a channel that wasn’t generating a profit. However, ROI is not always easy to calculate, and it can be tempting to focus on short-term costs rather than long-term gains. For example, a lead from one of our sources costs $400. This may seem like a lot of money, but if we look at the business generated by this channel, we see an ROI of 1,100%. In other words, this channel is attracting the right type of leads and is well worth the investment. The same is true for channels that deliver more leads but fewer deals. These channels may appear to be less efficient, but they are still an important part of our overall strategy. By taking a long-term view of ROI, we can make sure that we are investing in the right channels and generating the maximum return on our investment.
You don’t have a system that tracks specific leads?
Google Analytics and Google Tag Manager are great if you, as a smaller company, cannot invest in an inbound marketing system. There you can set goal tracking on the page, for example, forms for demo and contact. Then you can measure target conversion under sources (where visitors come from) to calculate the cost of conversion/leads.
So if the management wants to cut the budget for marketing, it is great if you can demonstrate actual business from the digital efforts. There are not that many that will say no to black-on-white ROI 😉
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