subject: Crm System Friendly Cost Per Lead Formula [print this page] Despite the Hollywood depictions of devastatingly handsome men with their golden tongues and magical charm, sales and marketing is really a mundane numbers game.
The vital number in marketing is cost per lead. Cost per lead influences your sales team, as more expensive leads put more pressure on your staff to convert as many as possible into sales. It will influence the type of product you sell and at what price. If your product has narrow profit margins you need to either find a source of cheap leads or increase your prices.
Now I don't want to deny the importance of good sales but if your cost per lead isn't spot on you'll be starting off at a disadvantage.
So how do you calculate cost per lead? The basic formula is: money spent on marketing number of leads generated = cost per lead. For example if your marketing budget is $3,000 for the month and during that month you receive 203 leads by dividing the sum spent on marketing ($3000) by the leads gathered (203) you come to your cost per lead which is $14.78.
If only marketing was so neat and tidy in the real world. Using the example above, even if you split that $3,000 equally over 3 different marketing strategies such as online advertising, a direct mail campaign and a newspaper ad your actual results would not be as evenly split as your budget. You might find that 137 of those leads came from your direct mail campaign, giving you a cost per lead of $7.30, which is very reasonable. On the other hand your online advertising might have only drawn 50 new leads to your company, making the cost per lead in that scenario $20. And finally your newspaper ad which cost $1,000 only returned 16 leads and each of those 16 leads cost $62.50. Ouch!
To effectively measure your cost per lead you need to chunk down the campaign level. Because some marketing activities will perform better than others and if your marketing budget is limited you should try to stick to the strategies that give you a low cost per lead. Generally speaking lower costs leads give you the best opportunity to turn a profit.
When you start calculating cost per lead on an individual campaign basis you have more useful data but it is more difficult to obtain. To make things simple consider investing in a CRM system with campaign tracking. It won't break the bank, many of the available CRM systems allow you to start capturing all this data for $100 per month of less. One bad marketing method avoided and you've made your money back 10 times over.
To start gathering the data to evaluate your cost per lead across individual advertisements or mediums you must enforce the rule that the source of every new customer is entered into the system. Be firm with staff who don't nominate a source when creating a new record in your CRM database. Once you have the data in your software these CRM systems can generate reports that show you how many clients are attached to a particular campaign. From there it is easy to determine your cost per lead. Simply divide the cost of the campaign by the number of leads generated.
CRM systems also help you take your marketing to the next level by giving you the ability to track not only the cost of leads but the quality of the leads generated. Some leads are more likely to become customers while others are just fishing for information. So use your CRM system to indentify the cost per new customer. To calculate cost per customer take the original cost of the marketing campaign add any sales costs (i.e. staff time, phone calls or brochures) then divide this figure by the number of new customers received.
If you're not a mathematician don't despair. CRM systems make the tracking and reporting so easy you'll be able to access the essential numbers in no time.
