What is a Lead Worth?
Lately, I have been happily attracting leads for my Internet marketing products and services from a wide range of sources including search engine advertising, online classified ads and even an eBay campaign. But am I spending too much? What is a lead worth anyway?
I figured I had better find out! Otherwise I could be spending more money than a lead is actually worth to me.
Here is the process I went through to determine how much I should pay for a lead..
1. Defining what a lead is for you.
If you are buying lead lists from someone, the value is much less because the people haven't heard of you, they have just opted in to someone else's list.
2. Tracking your leads.
Without the ad tracking, I would never know which campaigns were working and I would be wasting 95% of my marketing dollars.
The ad tracking service I use is called 1ShoppingCart. They offer unlimited ad tracking and auto responders.
3. How many leads does it take to generate a customer?
4. What is each customer worth?
5. Calculating the value of your leads.
Value per lead = value per customer ÷ number of leads needed to generate 1 customer.
In my case, my accounting program for 2004 showed an average expenditure per customer of $259. In my own case, I believe that 1 out of every 25 signups will result in a sale.
Value per lead = $259 ÷ $25 = $10.36
In my case, each lead I generate should bring me $10.36 in sales.
5. What about profitability?
If I assume that I currently make $5 profit on a $10 sale, I might want to set a target of paying a maximum per lead of $2. This way, on a $10 sale, my total cost including the cost of the lead plus the cost of the product is $7, leaving me a $3 profit.
In my case, my actual costs in 2004 were only 37% of my sales, so I could afford to pay even more, but the $2 target seems a good one for me to work with. Fortunately, it is easy for me to generate all the leads I need for less than $2 each through the various types of advertising available.
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ABOUT THE AUTHOR
Garland Coulson, “The E-Business Tutor” is an acclaimed speaker, author and coach in the field of Internet marketing for small business and home business. For more information, visit The E-Business Tutor web site at www.ebusinesstutor.com or call toll-free in North America at 1-866-413-0951.