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Quality vs. Quantity and Understanding the Real Cost Per Lead (rCPL™)

By Nick Price

Many marketers have learned the hard way that a poor quality lead, even if it came at a very low price, will cost a lot of money and time to follow through, only to end up with no deal closed. In the long run that list of low quality, low cost leads that you just picked up may require more time and effort to convert than the sales-ready leads that seem to be a bit out of your budget. The Real Cost Per Lead (rCPL™) takes into account the amount of time and resources your sales people need to engage, nurture, and eventually close a lead into a sale, and adds that figure to the initial lead acquisition cost. Identifying the rCPL™ for a lead purchase may in fact show that purchasing premium, higher quality leads will actually cut costs in the long run.
Take these two scenarios for instance:
Assume that your average deal size is $15,000 and your sales rep costs you an average of $7,000 per month fully burdened (Salesperson fully burdened (Salary, Commissions / Expenses) – this could vary significantly up or down based on location of hire).
Scenario 1
Let’s say that you acquired 10 leads, each at $25 for a total of $250, and provided these to your sales rep. Two closed after taking 6 months to close. Therefore, it cost you $42,250 plus commissions to earn $30,000 in revenues.
Scenario 2
You decide to try another vendor that offers higher quality leads, but at a slightly higher Cost Per Lead. You received 10 leads each for $120 or for a total of $1,200. However, four of these leads closed within three months. During the same six months, with these higher quality leads, you are able to close 8 deal, generating $120,000 in revenue for a total cost of $43,200 plus commissions.

Although the first set of leads looked ten times cheaper at only $20 versus $200, the quality of these leads was so poor that they ended up costing you nearly three times as much as a percentage of revenue generated—i.e. it cost you $1.41 for each $1 of revenue you produced to process these leads. In the meantime the “expensive” leads cost you only $.37 for each dollar of revenue, since their quality was better–they closed at a higher rate and faster than the much cheaper deals.
It is very important that you factor in closing ratios and sales cycles when you calculate the cost of leads, not just what those leads cost you per unit when you acquired them. Ultimately what you want is revenue and not leads. Since you have to process the leads until they are closed won or lost, you have more costs to factor in than just input cost of leads.

Nick Price

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