When I was working for a software company as their online marketing manager, we determined our cost per lead from Google ads was around $45 per lead. At first we thought that was high then we did some research and found it was a bargain.
What is cost per lead? It’s pretty simple to figure out. Let’s say you spend $1000 on Google ads and 100 people fill out your web form after clicking on your ad. You received 100 leads so your cost per lead is 1000 divided by 100 which is $10 per lead.
You can get into more detail by identifying the quality of your leads, where they are in the sales cycle and their temperature, cold, warm or hot. These factors matter but your cost per lead is still the total amount spent divided by the number of leads generated.
Let’s dig deeper into our $45 leads for the software company.
I segmented our campaigns into three categories, beginning of the buying cycle, in the decision making process and ready for C-level approval.
People in the beginning of the buying cycle knew they needed a new website and were beginning to explore options. They would search Google for terms like “what is the best website software” or “best website platform” so we had a white paper which described the various options for building a website. The whitepaper was unbiased and simply described the options available. Of course we mentioned our website platform software in the report!
The next stage of the buying cycle is when the potential buyer knew what platform they were interested in so they wanted to learn more about those platforms. We sell a content management system so potential buyers were searching for “best content management system” or “best CMS”. Of course we offered an “unbiased” report called Choosing the Best CMS.
Finally, the potential buyer new they wanted to buy our content management system software so they had to sell it to the C-level people who would authorize the purchase. Entreprise-level content management platforms are well over $100k to purchase and implement so we offered reports from reputable industry analysts like Gartner and Forrester. These reports compared the top content management systems from a third-party perspective which C-level executives value.
So was $45 per lead too much to spend on our leads?
Considering the average deal size was around $100,000, spending $45 a lead sounds like a no brainer.
But there’s another factor you need to consider.
What percentage of your leads actually turn into customers?
If only 1 out of 100 leads turns into a customer, is $45 too much to spend on each lead?
100 leads times $45 equals $4500 spent on the leads and you’re earning at least $100,000. It’s a no brainer.
What if only 1 out of 1000 leads turns into a customer. 1000 times $45 equals $45,000 and you are earning over $100,000. Over 2X ROI so it’s still a good investment.
The key to successful online advertising is knowing your numbers. How much are you spending? How many leads are you generating? How many leads does it take to make a sale? What are your price points?
I could go much deeper into lead quality and where they are in the buying cycle but you get the idea.
Track your online ads carefully and know your numbers!