Is it really just all about Generating Leads: Or is ‘Cost of Sale’ Still King?

Many people focus on the cost of generating a lead, not the value of the leads they’re generating. Their thinking is a ‘lead’ is a lead – and if we can get them cheaper, that will work out even better for us!

However, not all leads are equal, and even if some lead generation programs are more costly – that doesn’t mean that they can’t be more profitable!

For lead generation campaigns to be ‘profitable’ we need to consider all elements involved in reaching that goal – turning those leads into profitable sales or appointments for our team to make profitable sales.

When you only focus on the cost of a lead, you’re just considering one element in the overall equation to earn profit. You don’t take into consideration other elements that are important in delivering cost effective sales, – things like, a Customer Lifetime Value, associated sales and marketing costs, booking rates, conversion rates, and average sales value.

To enhance our profitability, we need to focus on the overall Marketing Cost of Sale in our lead generation campaigns, and each element within the equation, rather than just lead costs.

When we do this we’ll understand what we can actually afford to spend on a lead, which can open our eyes to other lead generation opportunities we may not have considered because we thought they’re far too expensive.

Now, when considering all the elements involved in determining your Marketing Cost of Sale (MCOS) you need to consider all the pieces of the puzzle and start with a campaign budget that includes all the revenue and cost elements to identify your MCOS and determine profitability.

Marketing Cost of Sale and Marketing Cost of Sale % are simply defined as:

MCOS = Marketing Costs/Sales Revenue

MCOS% = (Marketing Costs/Sales Revenue) X 100%

Yes, we all get that we generate leads to eventually earn profit. Or do we?

Many years ago I spoke on a marketing panel during an American Resort Development Association (ARDA), annual conference. When I started my presentation I asked the audience to raise their hand if they would buy a lead (appointed prospect on a sales presentation) from me for $1,000.

Unsurprisingly, no hands went up.

My next question was – Who would buy a lead from me for $100 that you would close at 6%?

And yes, as expected, three quarters of the audience put their hands up! Thank God they did put their hands up, otherwise my presentation was blown! And, just so you know, a $100 lead cost was considered cheap in those days by industry standards and the close % was also about right for that lead cost.

Then I asked – What if I told you that you’d close 80% of the $1,000 leads, who wants them now?

Slowly, the hands of those few who could do the math went up.

And, here’s why.

Assuming we had the same numbers of leads at the costs and conversion rates I mentioned above: which is the more profitable lead?

Lead Costs
Leads Generated: 100 100
Cost per Lead (‘all in’ costs): $100 $1,000
Total Lead Costs: $10,000 $100,000
Sales Revenue
Leads Generated: 100 100
Sales Conversion Rate: 6% 80%
Sales achieved: 6 80
Average Sales Value: $10,000 $10,000
Total Sales Volume: $60,000 $800,000
Marketing Cost of Sale
Total Lead Costs: $10,000 $100,000
Total Sales Volume: $60,000 $800,000
Lead Cost per Sale: $1,667 $1,250
Marketing Cost of Sale%: 16.67% 12.5%

Obviously, in this scenario, the $1,000 leads drove more sales, generated a lot more revenue and were a lot more profitable than the cheaper leads!

Now, I hear you – what about the risk of spending $1,000 on a lead as opposed to $100 Not to mention the other cost elements involved in delivery a prospect to a sales presentation – labour costs, materials and overheads, just to name a few. And hey, what about that close % on that $1,000 lead?!

Obviously, lead costs and conversion rates are not often that far apart. Naturally, I was exaggerating the lead costs between $100 and $1,000 and their associated sales conversion rates in my presentation to make this simple point.

Although important, the cost of a lead is only one part of the puzzle – What matters most is the overall cost of sale that we achieve from the leads we use!

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