Lead Generation 2.0: Part 2, Comparing Cost-Per-Lead Apples & Oranges
I continue to marvel at the high number of companies that only use cost per lead as a basis for lead generation buying decisions.
I mean, I get the buzz around inbound marketing and marketing automation driving down the cost per lead. HubSpot's The State of Inbound Marketing 2010 survey found the average inbound cost per lead of $134 was 60% lower than the average outbound cost per lead of $332. (A side note—it's my sense that these dollar figures are skewed toward smaller company marketing spends as similar metrics for complex solution selling are significantly higher.)
With widespread distribution of stats like this, it wouldn't surprise me if I heard someone ask, "Why pay more than twice inbound's cost per lead for outbound leads?"
This logic—that something called a "lead" can and should be had at consistently lower price points where it will still deliver value—is at the root of a host of sales and marketing problems and deserves a closer look.
Putting three areas under the microscope illuminates apples-vs.-oranges factors and drives a corrective path around the "cost per lead" quagmire.
Lead definition is critical
As I mentioned in Part 1 of this blog series, Lead Generation 2.0: A Lead By Any Other Name, it's important for sales and marketing to agree on what a lead is.
Apples—Where a "lead" is a low level inquiry
The value of a lower cost per lead approach has merit early in the funnel where inbound marketing and marketing automation can be helpful in moving large numbers of prospects to raise their hands and express interest.
Oranges—Where a "lead" is a sales-ready buyer
But striving for a lower cost per lead when defining, developing and delivering a lead as a sales-ready buyer is a recipe for disaster. The high-volume initiatives marketing uses to generate big numbers simply can't be used because they don't include the personal communication and multi-touch engagement needed to validate qualifying criteria. Embracing a higher cost per lead in developing sales-ready buyers is as much a given as gravity.
The nature of the solution and selling process impact the cost per lead
In an earlier blog, I differentiated between two types of solutions and selling processes, and acceptable cost per lead will vary significantly based on the type.
Apples: Straightforward/Short/Low Solution Selling
Lower cost leads can be expected and are even necessary when the selling process is straightforward, the sales cycle is short and the investment is low. For example, it would be possible to generate a lead for a $10,000 piece of hardware for $350. Technical specifications are to the point, and the buying process may involve working directly with a single contact in a purchasing group.
Oranges: Complex/Long/High Solution Selling
Higher lead costs are expected when the selling process is complex, the sales cycle is long and the investment is high. Again, an example—a $250,000 software solution may require connecting with a CEO, a chief line of business officer and others. A business case may need to be built over time to drive a budget. The reality is generating a lead for a $250K software solution is going to be substantially more than generating a lead for a $10K hardware solution.
A reset on the best way to measure marketing performance
Using cost per lead to measure success incorrectly incents volume over quality.
Apples: Cost per lead as a metric
By its very nature, a cost per lead approach incents high volumes of leads—and ultimately adds costs when sales discovers many don't meet qualifying criteria.
Oranges: Cost per opportunity and cost per deal as metrics
While cost per lead may be a valid metric for high-volume, low-level prospect acquisition, cost per opportunity and cost per deal are better indexes when measuring initiatives for developing sales-ready buyers. These performance metrics are grounded—not in volume—but in opportunity quality, conversion ability and revenue generated on investment.
The reality is that leads cost what they cost—particularly in engaging and developing high-value opportunities in Complex/Long/High selling situations.
The next blog in the series builds on the importance of lead definition and getting beyond cost per lead blinders to see that fewer sales-ready leads that each cost more are a far better value than many poor-quality leads costing less.