Truth #3—Cost per Lead Based Marketing Kills Companies
No doubt one of the biggest problems with marketing today is that more and more companies base lead generation buying decisions entirely on cost per lead. Companies of almost any size will spend thousands of dollars on a trade show and then balk at paying more than a few hundred dollars per lead.
Why is this wrong? Because the decision isn't being made based on the quality of leads. Nor is it being made based on results or ROI. Instead, the decision is being made solely on the basis of what each lead costs. In the B2B world of the complex sale, it's easy to see that fewer sales-ready leads that each cost more is a far better value than many poor-quality leads costing less. Yet the quantity vs. quality mentality persists—and it's a big mistake.
What are the ramifications of measuring cost per lead? In reality, no one knows. Field sales forces and resellers (or other descriptions for channel partners) are so conditioned to expect poor quality leads from marketing departments that they ignore most of the leads they get anyway. No wonder marketing bangs their heads against the wall. No wonder there's pressure to lower the per-lead cost.
The Proof is in the Numbers
Allow me to demonstrate the fallacy of measuring the success of lead generation programs solely on the basis of cost per lead. (Figure 2):
Figure 2 - Cost per lead comparison
|
Prospecting Campaign Summary |
Worst Case |
Expected Case |
Best Case |
|
# of Companies |
1000 |
1000 |
1000 |
|
# Contacts per company |
3 |
2.5 |
2 |
|
Touches per prospect |
5 |
5 |
5 |
|
Total touches |
15000 |
12500 |
10000 |
|
Touches per day |
100 |
100 |
100 |
|
# days required |
150 |
125 |
100 |
|
Fee per day* |
$500 |
$500 |
$500 |
|
Short-term lead cost
(40 leads) |
$1,875 |
$1,563 |
$1,250 |
|
Short and Long-term lead cost
(80 leads) |
$938 |
$782 |
$625 |
*Assumes a salary of approximately $50,000 plus benefits, equipment supervision, technology and other costs.
Let's assume you have been mandated to reduce the cost per lead to $350. Even in the best case scenario, you only have two options:
Option 1: Reduce the base salary for the individual creating the leads from $50,000 to $14,000.
Option 2: Increase the number of leads per individual per week to seven from two.
Which of these scenarios do you want to bet your company on? Most reasonable executives agree that Option 1 is unlikely. You cannot buy the labor required to accomplish this task for $14,000 per year. And to increase the number of leads per week from two to seven, one would have to believe that any of the following is possible:
1. Touches can be increased from 100 to 315 per day. (Impossible.)
2. Short-term lead rates can be increased from 4% to 14%. (Dream on.)
3. Instead of talking to two line-of-business contacts per company, you can get by talking to .56 contacts. (How would that work?)
4. Why waste five touches on every contact? You can really get by with just 1.4 touches. (With next to no results.)
The reality is that leads cost what they cost. The market is relatively efficient. Lead generation companies can no more over-charge companies for services (at least for sustained periods of time) than companies can substantially reduce the cost of maintenance services without a substantial decline in actual and perceived value of those services.
Measuring marketing success on cost-per lead: Short-sighted? Yes. One-dimensional thinking? Yes. Killing company profits? Yes. Click to read marketing success case studies.