Lead Generation Basics – What goes into figuring an acceptable cost per lead?
Most Sales and Marketing organizations take a quick and dirty approach to calculating a cost per lead figure. First, they look at the average value of a sale, and then they select an arbitrary percentage of that number to come to a cost per lead figure. Often, this figure becomes a never changing amount in the collective minds of the organization, even though market dynamics and product offerings are ever changing.
For deeper insight into cost per lead, consider the following:
- Is the product/service/solution you are selling a commodity or a unique/customizable offering?
- If a commodity = less complexity, less cost per lead
- If customizable solution = more complexity, more cost per lead
- What is the solution cost relative to the size of the target organization?
- A $100k price tag for a multi-million dollar a year firm is not a difficult spend and may indicate a smaller cost per lead
- But for a smaller company the same price could be a significant expense resulting in a longer sales cycle and higher cost per lead
- Is the solution one that will affect a few or many in the organization?
- Few = not so many opinions, lower cost per lead
- Many = more opinions, more evaluations, more time to sale, higher cost per lead
- What is the personality type of the decision-makers?
- Analytical thinking people like CFOs, controllers, and engineers tend to stretch out the sales process, more cost per lead
- Less analytical people tend to make quicker decisions, less cost per lead
- Strategic solution vs. Tactical solution
- This could go either way. For instance, a strategic solution could have a long term and wide ranging effect indicating more evaluation of risk than a tactical solution. But, a strategic solution might also be easier to exit or adapt to change than a tactical or point solution.
It is no surprise that complicated solutions or market trends or the solution price tag will stretch out the sales cycle, but it also has an impact on how much you should budget for lead generation.