Measuring Cost Per Lead

The Case for Inbound Marketing

Convention tells us that trade shows, cold calling and direct mail will elicit results. Truth is, they do and have for quite a while.  The problem is we rarely measure the cost per lead and conversion of those activities. There are no financial or accounting tricks to doing so, but the regular blocking and tackling fundamentals sometimes fall through (as one of my former coaches used to say).

Lets first look at trade shows. Exhibiting at a convention can be incredibly cost prohibitive for small companies. So, why do we do it? The same reason men buy nice cars – to score. But does the cost of that exhibition space give you what you need? Let’s look at some basic metrics.

1. Average Sale = $1,000
2. Cost for show = $12,000
3. Leads Generated = 120
4. Cost Per Lead = $100

This model tells us that 10% of the final cost of closing a new customer comes from one show.  This doesn’t include employee time away from the office, opportunity cost of closing less expensive leads or cost of time to close the sale. Also, the cost of the show I have offered is conservative. Shows can cost even more than this, depending on the size of exhibition space and other variable expenses that are incurred.

Cold calling can also be a huge expense with low conversion rates. Lists can cost anywhere from $1,000 to $50,000, depending on size and type. Obviously, the more expensive the list is usually means it is more targeted and will generate a higher rate of closed business.  This kind of business also takes quite a bit of human capital to convert, so salary expense should be measured, along with spiffs and bonuses. Do you have all metrics measured and configured so that your call lists give you a decent return on investment?

Finally, direct mail can make your wallet quiver too. Once again, a list must be generated, costing similar expense. Even though this is a type of inbound marketing copy writers, printers, and postage must be paid. Then, you have to wait for a 1%-5% response rate.  Therefore, large amounts of material must be mailed to get a reasonable number of leads and ultimately conversions.

The big question that begs to be answered? Will this limit you from undertaking other marketing tactics? Are you falling back on these tested methods because innovative marketing tactics aren’t finding their way to your desk? As an executive, you will have to manage many things; how expensively you obtain each customer may be the the most important communicative effort you will undertake. I think keeping lead generation under 5% of your average sale is paramount to success.

Therefore, inbound marketing tactics need to be employed. Inbound marketing consists of activities that generate leads that flow to you, via recommendation, website contact form, email, phone and social network. There are a multitude of non-traditional tactics that can be employed to your business model.

Word of Mouth (WOM), Social Networks, smart Email, targeted display ads, Public Relations effort and focused sponsorships can all be considered forms of inbound marketing because leads can flow to your organization with little expense. Think about the limited cost of these marketing efforts. It may take a little more intellectual capital, but your net profit margin and balance sheets will thank you for spending a little extra time to ideate before you take action.

Have you had a cheap marketing expense that gave you a win? Tell me about it; I’m interested! Feel free to email me at therran@oliphantconsulting.com to tell me about it, if you don’t want your secrets out there for everyone