What is Lead Generation?
The number of how many people have engaged with your business to decide on whether to make a purchase or not is lead generation.
It does not necessarily mean that there must be a conversion.
Even a visitor coming to your website and not taking the desired action counts as a lead.
The vital thing to know here is that there are two types of leads because the terms of marketing and sales carry different characteristics within themselves:
- The first type of lead is Marketing Qualified Leads (MQLs) which are the potential prospects that you were able to persuade.
- The second type of lead is Sales Qualified Leads (SQLs) which are customers who have engaged with your business. There are ways, like downloading an ebook, purchasing a product or making a reservation.
How to Calculate Cost per Lead (CPL)?
Cost per Lead or, CPL, is one of the most used metrics to evaluate the efficiency of a digital marketing campaign. And the formula of CPL is very straightforward:
CPL= Total cost spend on a digital marketing program/ Number of leads coming from the program
Let’s say you have spent $1,000 on a pay-per-click (PPC) advertisement and 50 people were converted into leads.
- Cost per Lead = $1,000 / 50 = $20.
Remember that generating leads is all about a high return on investment of your customer acquisition.
The higher the ROI, the more costly a lead is; and the lower the ROI, the less likely you are to pay for obtaining leads.
Types of Lead Generation Costs
There are several types of costs associated with lead generation, including the following:
➢ Advertising costs: These are the costs associated with placing ads in various media outlets, such as print, online, television, or radio, in order to attract leads.
➢ Marketing costs: Costs associated with promoting products or services to potential customers, including activities such as email marketing, social media marketing, and content marketing.
➢ Sales costs: These are associated with the sales process, including salaries and commissions for salespeople, as well as the cost of materials such as brochures and product samples.
➢ Lead generation software costs: These are the costs associated with using specialized software to generate leads, such as marketing automation software or customer relationship management (CRM) software.
➢ Lead generation service costs: Outsourcing lead generation to a third-party service provider, such as a telemarketing firm or a lead generation agency.
➢ Personnel costs: Hiring and training employees to handle lead generation activities, such as salespeople or marketing professionals.
Average Cost per Lead
The average cost per lead varies based on your industry, lead generation channel, company size, and company revenue.
CPL differs widely depending on
- the industry,
- the profundity of your target audience,
- the competition among your sector.
When it comes to the amounts and the cost influencing factors, it is better to explore them!
Average Cost per Lead by Industry
If the industry alters, the average cost per lead focuses on revenue and the changing elements based on the industry you belong to.
Below you can see the table we prepared for you.
Average Cost per Lead by Lead Generation Channel
Lead generation channels are the means of reaching more, and the more channels, the better.
Below you can see the table we prepared.
Average Cost per Lead by Company Size
The average cost per lead can vary significantly depending on a variety of factors, including the size of the company.
In general, small businesses tend to have higher costs per lead than larger businesses because they may not have the same economies of scale or access to the same resources.
However, it is difficult to provide a specific average cost per lead by company size, as there are many other factors that can impact this metric, such as the industry, target market, marketing strategies, and sales processes.
Average Cost per Lead by Company Revenue
It is difficult to give an average cost per lead by company revenue, as the cost per lead can vary widely depending on a variety of factors.
That being said, in general, it is often the case that companies with higher revenues tend to have a lower cost per lead than companies with lower revenues.
This is because companies with higher revenues often have larger marketing budgets and can afford to invest more in lead generation efforts.
They may also have more resources to optimize their marketing campaigns and target their efforts more effectively, resulting in a higher return on investment.
For example, a high revenue company in the software industry with a large marketing budget may have a lower cost per lead than a low revenue company in the same industry with a smaller marketing budget.
On the other hand, a low revenue company in a niche market with a targeted marketing strategy may have a lower cost per lead than a high revenue company in the same market with a less focused approach.
It's worth noting that the cost per lead can also vary depending on the specific goals of a company's marketing campaign.
For example, a company that is targeting a very specific audience and is willing to pay a higher cost per lead in order to reach that audience may end up with a lower overall cost per lead if its marketing efforts are successful and it is able to generate a high number of qualified leads.
How many Leads do you Need?
As the main aim of a marketer is to maximize efficiency in campaigns, you must understand how many leads you need to hit the revenue goal of your business.
This analysis requires information about your company data elements like;
➢ Targeted Revenue: The amount of revenue you aim to reach at the end of a period
➢ Marketing-Driven Revenue: The portion of total income that is acquired thanks to marketing efforts.
➢ Average Sales Price (ASP): Net Sales/Number of Units Sold
➢ Marketing-Driven Deals: Marketing Driven Revenue/Average Sales Price
➢ Opportunity-to-Sale Ratio: How close you are to turning one lead into a customer out of the total number of leads
➢ Qualified Lead-to-Opportunity Ratio: How many leads it takes to turn one lead into a customer
➢ Lead-to-Qualified-Lead Ratio: How much analysis is necessary to turn one lead into a converting customer.
Now, let’s evaluate one example together:
- Suppose you aim to reach $100,000 in revenue by the end of the month.
- Your marketing-driven revenue is $45,000 at the end of the month.
- The ASP is calculated at $5,000.
- Marketing Driven Deals: $45,000 / $5,000 = $9
- Opportunity to sales ratio is predicted as 3, which means you have the opportunity to turn one lead into a customer out of 3 leads.
- Number of Opportunities Needed: 3 x 9 = 27
- Qualified lead to opportunity ratio is foreseen as 6, which means you can turn one lead into a converting customer if you have at least 6 leads.
- Number of Leads Needed: 6 x 27 = 162
What you can deduce from this example is that you need to have at least 162 leads in order to obtain zero profit.
Rather than making calculations to know the lead break-even point for your digital campaign, some tools will provide you the same information automatically.
Lead Generation Service Providers
Another option to increase leads is to pay a third-party to generate leads for your business.
In some cases, getting help from companies in the lead generation sector would be more effective than spending your money and time on obtaining leads by yourself.
Especially if you are a small business with a small database of prospects, you may let someone else develop an extensive database for you while you focus on customer retention strategies within the company.
The problem with those companies is that they offer you a temporary solution.
When you stop paying for obtaining leads, they will simultaneously stop generating leads for you.
Therefore, you need to constitute an efficient plan to keep those leads and turn them into loyal customers.
No matter which path you choose, you should;
- set clear objectives,
- start an accurate program for the job,
- track your results to find the best strategy.
Here are some of the companies that may help you generate more leads, their services, and their prices are given;
To Cut a Long Story Short…
To sum up, if your overall value of a lead is more than your total lead cost, it means your lead generation program is a winning one!
Now that you know the details of the cost of lead generation, you are ready to become a digital marketing hero in your workplace.
Don’t forget to apply these in your lead generation marketing strategy in your business!
If you have any questions or suggestions, please do not hesitate to share them via the comments!
Frequently Asked Questions
1. Are there any Free or Low-Cost Lead Generation Tactics that I can Use?
There are several free or low-cost lead generation tactics that you can use, such as:
- Social media marketing
- Blogging and content marketing
- Email marketing
- SEO
- Networking and referrals
2. Is it more Cost-Effective to Generate Leads In-House or to Outsource the Process?
The answer to this question depends on a variety of factors, including the size of your company, the complexity of your lead generation efforts, and the resources you have available.
In some cases, it may be more cost-effective to generate leads in-house, particularly if you have the expertise and resources to do so effectively.
However, in other cases, outsourcing lead generation to a professional agency or consultant may be a more cost-effective option, as it can allow you to tap into specialized expertise and save on in-house labor costs.
3. How can I Lower the Cost of Lead Generation?
There are several strategies you can use to lower the cost of lead generation, including:
- Focusing on tactics that are relatively low-cost, such as content marketing and social media advertising.
- Optimizing your website and online presence to increase the conversion rate of your leads.
- Implementing automated lead nurturing processes to save on manual labor costs.
- Partnering with other companies to co-market and share lead generation costs.
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