• http://www.nimaheydarian.com Nima

    Any resource suggestions on how to find the actual optimal cost-per-lead?

  • SearchMeister

    Given a limited budget, your most efficient method is still to strive for the lowest cost per lead possible, provided you can still spend the full budget. If you have no fixed budget, then you would continue purchasing leads until the marginal profit is zero, thus maximizing profit. Not many marketers work with an unlimited budget, however.

  • http://www.practicalcogitators.com tmadel

    Interesting column. I agree completely that minimizing cost per lead can be a very misguided goal. Focusing on ROI is absolutely the right thing to do.

    It is dangerous, though, to rely only on averages when doing this analysis.

    For instance in your example above, you say that someone could get 100 leads for an avg. cost of $50 per lead. If they wanted more leads (to 150) the average cost per lead would rise to $80.

    You argue they still may want to do this if the ROI worked out: the return per lead > $80.

    This is not true, because while the average lead may now cost $80. The incremental leads cost $140.

    If you get 150 leads for $80 each your total cost is $12,000. If the first 100 leads cost $50 each they total $5000. That means the additional 50 leads cost $7000 or $140 each.

    If each lead led to $100 in revenue then it seems to make sense that paying an avg. of $80 per lead is smart, but not when the incremental leads are costing $140.

    Be very careful with averages!!!!

  • http://www.marketingdrs.com elcer24

    Having spent millions a month on PPC, it was possible to determine the optimal point for a PPC campaign.

    As Patricia mentioned, you can either get some unknown volume at a fixed CPA OR fixed volume at some unknown cost.

    The If you graph volume VS acquistion, you basically get a parabola. If you know the equation of that line, you can use Calculus take a derivative and get the values at points of inflection.

    For the rough guestimate method, graph volume on an X-axis and CPA on the Y-axis. You can visually predict a range where you’ll get the most volume for the least cost (the farthest point of the curve), which will be close to the optimal point for business (or clients’).

    In my practice, I generally start with a client’s desired cost per lead, assume a 2% – 5% conversion rate, and then set my CPCs, adjusting on the purchase cycle timelines (average time from first visit until conversion). CPA = CPC / Conv% OR CPC (max) = CPA (target) * Conv%

    Guess I should write a white paper and include graphs?
    -Eric Clark

  • http://www.echoquote.com daleu@echoquote.com

    I think you hit the nail on the head (and your math was fine) but wonder why every marketer focuses on the cost of the lead versus its value to the organization, especially in B2B.