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17 February 2012
Total Lead Value – Does paying per lead really add up?

Total Lead Value – Does paying per lead really add up?


By Ben Turner @ 06:08 :: 1935 Views :: 3 Comments :: Article Rating
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IT marketing is becoming increasingly aligned with sales as the market matures. As a result, a more sales-oriented approach to measuring marketing success is being adopted. Johann Edwards looks at the evolution of the lead generation model.

In the noughties, ROI is the dominant measure, unlike the eighties and nineties where Direct Marketing dominated and the metric of choice was Cost Per Lead (CPL), or the glamour of the sixties and seventies with advertising and creative were de rigeur. For this reason managers need to focus more on cost per sale (CPS) and cost per dollar of revenue. Today, marketers fend off complaints from sales that there are too few [good] leads, and complaints from the boss that leads are too expensive. 

There’s nothing new about CPS, it’s just rather harder to measure than CPL.  It also means that marketers and sales people have to work closer together.  In order for this to be effective, everyone has more admin, because they have to update CRM systems and Lead Tracking tools[1].  For these reasons, when managers outsource their lead generation, they still mostly target cost per lead (CPL). There are a number of issues with this approach: As sales targets go up each year, and the cost of technology goes down, the annual lead target suffers from hyper-inflation. As a result I have genuinely had clients ask me for more leads than there are companies in their market space (true story).
 
·         As lead targets suffer from inflation, each lead becomes worth less and less. As a result decent leads are hidden amongst a high volume of general , so sales people start to ignore all leads, as they don’t have time to separate the good from the bad.
 
When I articulate this to clients, they agree, yet they often feel it is impossible to re-negotiate their targets, and if I push the point, I lose the deal. As a result the market is awash with poorly qualified leads that:
 
·         Annoy the prospect, because they’re not sufficiently interested to want a sales visit.
·         Annoy the sales person, because their sales productivity and morale plummets.
·         Annoy the business owner, because cheap leads that don’t work are still too costly.
 
The end result is that marketing is blamed.
 
By adapting the wrong metric (CPL) the wrong behaviours are adopted and the industry is taking a long time to change.
 
It would seem perfectly logical for managers looking to demonstrate return on spend to focus on calculating a cost per lead.   This analysis provides a useful benchmark that can help with budgeting and, when coupled with an understanding of average conversion rate, gives an indication what volume of leads would be required to hit revenue targets. However, closer analysis of which leads are more likely to convert and the total lead value (TLV) overall, rather than the volume of leads alone can have a much bigger impact on the expenditure to revenue (E:R) ratio. 
 
The concern for managers is that
 
·         it is difficult to identify and qualify high value or high quality leads at the point of lead generation, and
·         allowing sales teams or resellers to focus only on high value leads will lead to a ‘feast or famine’ sales pipeline. 
 
However, these concerns do not justify the status quo, because the average lead quality is often so low that even the high value leads are ignored, and as a result marketing spend is wasted.  
 
Identifying high value opportunities is challenging and does need additional investment; particularly in tools and training at the front end of the process. For most mid- to high-end solutions, the benefits of this approach far outweigh any investment in training and development that may be required. 
 
Skilled agents can predict with reasonable accuracy the value of a lead and how likely it is to close, assisting with prioritising leads and increasing sales productivity. Experienced agents are equipped to qualify opportunities to a much greater depth, enabling effective targeting and helping to deliver a much greater E:R ratio through improved conversion rates. 
 
Without this up-front qualifying, re-evaluation of the opportunity will be needed at some point further down the line, wasting time and resources and resulting in a gap between sales and marketing targets and expectations.
 
Where I have worked with clients who have implemented targets based on Total Lead Value, we have seen major increases in E:R ratios for a number of clients, without changing budgets or people, just behaviour. One client went from an E:R of 1:2 to 1:20 without any increase in budget! This is a classic Lean Thinking™ result, where productivity is driven by having the right process. When it comes to developing your pipeline targets, think about your total lead value and how you can work with your sales team to focus on high value opportunities for optimum results. 
 
Article by Johann Edward, CEO of EIMS Marketing Services, a multi-lingual marketing services company for the technology sector. For more information, visit www.eims.biz .
 
[1] Sales and marketing people LOVE admin!
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Comments
comment By mike33 @ 23 July 2012 21:58
There is definitely so much that goes into these pay per leads. You really have to do your homework on these leads. It can definitely make or break you. www.debtcare.ca

comment By fredj @ 23 August 2012 01:26
The leads really have to be good to really pay off. I am not a big fan of these leads at all. It seems like they never work out good. orlando data backup

comment By Morite @ 01 October 2012 12:32
Every lead you refer is a great help to any business. Agents should be trained well to enable their effectiveness in getting leads. Buy HGH Advanced

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