• Why Paying Per Lead Doesn’t Add Up

    IT marketing is maturing; and as it does so it is integrating ever more tightly with sales.
    In the good old days of the sixties and seventies, marketing was dominated by advertising, creative, and big discretionary budgets that were measured in cost per impression (CPI or CPM).   Successful marketers enjoyed the champagne lifestyle on board glamorous yachts.  In the eighties and nineties, Direct Marketing began to dominate, and the metric of choice was cost per response, or cost per lead (CPL).  Marketers watched enviously as successful sales people bunked off to their yachts on the weekend.

    In the noughties, ROI is the dominant measure.  For this reason marketers 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 that it’s harder to measure than CPL.  Oh – and it means marketers and sales people have to cooperate.  It also means everyone has more admin, because they have to update CRM systems and Lead Tracking tools.  For these reasons, when IT Marketers outsource their lead generation, they still mostly target cost per lead (CPL).  The problems with this are several:

    • As sales targets go up each year, and the cost of technology goes down, the annual lead target suffers from hyper-inflation.  This may result in trying to achieve more leads than there are companies in their market space (I have genuinely had clients ask for this).
    • As lead targets suffer from inflation, each lead is worth less and less.  As a result decent leads are hidden amongst an avalanche of lightweight enquiries, so sales people start to ignore all leads, because they don’t have time to separate the good from the bad.

    Marketers are often aware of this problem, yet they feel it inappropriate to re-negotiate their targets.  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 nose-dives.
    • Annoy the business owner, because cheap leads that don’t work are still too expensive.

    And who gets the blame? Marketing.  In short the wrong target (CPL) drives the wrong behaviours, and the industry is taking a long time to change.  For marketing managers looking to demonstrate return on marketing spend and analyse results, it is easy to see how calculating a cost per lead would seem like a sensible way to evaluate effectiveness.   This analysis provides a useful yardstick that can assist with budgeting and, when coupled with an understanding of average conversion rate, can help to calculate what volume of leads would be required to hit revenue targets.  However, closer evaluation 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 marketing 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 not easy and does require more investment; particularly in tools and training at the front end of the enquiry process. For most mid- to high-end IT 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.

    Johann Edward is CEO of EIMS Marketing Services, a multi-lingual marketing services company for the technology sector.  For more information, visit www.eim.biz.

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