A reader asked me to explain why fewer leads are better and why “cost-per-lead” budgets fail. These are two great questions that have the same fundamental answer: quality first then quantity.
The truth is that sales people care very little about the cost of the leads we generate. What they really care about is how many of those leads will actually become viable sales opportunities.
For this reason, I think cost-per-lead measurements are irrelevant unless we can answer another fundamental question first, “What is our rate of lead acceptance (a.k.a. sales pursuit) into the sales pipeline” and then “What is the cost per opportunity?”
Sadly, I find that a lot of marketers tend focus on cost-per-lead because they really don’t know what happens to their leads after they hand them off to their sales team. This is why closed loop feedback and lead management are so important.
B2B Marketers must start measuring cost-per-opportunity now! Why? It’s the one metric that can help you understand how well your sales team accepts and pursues leads. Ultimately, it shows if your leads are actually helping our sales team sell and if we’re positively contributing to their pipeline.
Lead acceptance into pipeline is primarily a function of lead quality. There are other influences such as sales training and refining the lead handoff process, but lead quality stands out as the single largest factor driving the real ROI of our lead generation programs.
In a cost-per-lead model there is a tendency to drive down the cost of each lead by generating more leads, which is good if the quality does not suffer. However, this is rarely the case since there are a finite number of high quality sales ready leads in your target market at any given time.
The real question is, “Are these leads helping our sales team sell more and will these leads become profitable customers?”
In most cases in order to get more leads to sales (as they demand more leads now!), marketing is forced to send early stage leads, often at the inquiry stage in order to meet quota or cost per lead requirements. Of course, the need for more leads does not come with a commensurate budget increase!
Simply sending more leads over the fence to sales will only result in more early stage leads being lost, ignored or discarded. And if your early stage leads are not being cultivated with lead nurturing and given the attention they need, they will go to waste. Unfortunately in a cost-per-lead scenario this waste will not be measured, rather only your lead production costs.
There is no doubt that a cost focused mindset is a lot different than a value driven mindset. The cost focused mindset often drives decisions that are arbitrary to the objectives of a lead generation program. The most valuable leads are those that your sales team can convert to viable sales opportunities, not just leads that drive more activity.
Pushing more leads and creating more activity can give marketers a false sense of security in the short term, but in the long term the cycle of failed campaigns will continue as past failures are dismissed, overlooked or as fingers are pointed. To break the cycle, we must close the loop with sales and start measuring opportunities.
The following are real-world metrics that every marketer should track in their lead generation program:
- number of inquiries? (people who raised their hands)
- number of leads? (qualified as "sales-ready")
- number of opportunities? (leads that move to pipeline)
- number of closed sales? (generated from marketing leads)
If you know those metrics you can start to track the following key performance indicators:
- Inquiry to lead ratio (cost-per-lead) – this isn’t a enough
- Lead to opportunity ratio (cost-per-opportunity)
- Lead to pipeline revenue ratio (cost-per-pipeline revenue)
- Lead to sale (win) ratio (cost-per-closed sale)
A value driven mindset requires leaders and marketers to plan and budget for the long term and to take a more holistic view that goes beyond cost-per-lead budgets. Cost-per-lead budgets are irrelevant unless you can first measure cost-per-opportunity or cost-per-lead-pursued and lead quality is a key driver in insuring that those leads are pursued.
What do you think about cost-per-lead budgets or sending fewer high quality leads to sales people?