Finding The Optimal Cost-Per-Lead

It’s amazing how few companies can tell you what an online lead is really worth. I’ve found that most marketers embrace the lower is better philosophy. But, is a low-cost lead generation strategy always the best choice?

I contend that there is an optimal lead cost for every company. Establishing the right cost-per-lead model involves testing the market relationship between volume and cost… and ultimately must be driven by ROI.

Continually reducing cost-per-lead

Many B2B search marketing programs are designed to drive prospects to online contact or registrations forms. A common way to manage these campaigns is to drive cost/registration lower and lower, over time. Of course, one must ask: what is happening to volume with this strategy? How many potential registrations are being left on the table?

The cost/volume relationship

Undoubtedly, there is a relationship between lead cost and lead volume, but typically it is not linear. Let’s use a B2B pay-per-click (PPC) campaign as an example.

If 50 leads per month cost $2,500 ($50/lead) twice as many leads will not necessarily cost $5,000 (still $50/lead). It is common for lead cost to increase as investment increases. Why? With a very small budget you can milk all possible efficiencies out of a PPC campaign. As spend grows, budgets and bids are increased and a wider keyword net is cast. All of this will likely generate more leads but at a higher overall, average cost/lead.

The marketing efficiency curve

Each marketer must test this “PPC efficiency curve”, understanding the volume/cost relationship for their particular market. As campaigns are being optimized, data is been gathered, and marketers must analyze their options.

For example, would you rather have 100 leads per month at an average cost of $50/lead, or 150 leads per month at an average cost of $80? True: $80 is more expensive than $50 — but, depending on factors such as lead-to-sale ratio and the average profit margin associated with a sale, an eighty dollar lead might be the best choice. In fact, a savvy marketer might be willing to spend much more per lead, based on ROI.

Finding the optimal lead cost

Marketers who expend the time, energy and effort required to estimate the value of an online lead have a big advantage over their competition when navigating the marketing efficiency curve. Instead of focusing solely on driving cost/lead down, these savvy marketers focus on maximizing lead volume at an acceptable (profitable) cost/lead.

Where is the sweet spot for your company? I urge B2B marketers to test the market and find the optimal balance between lead volume and lead cost, based on ROI.