Measuring Cost per Lead can be costly…very costly!

I have had countless discussions with marketing leaders regarding the KPI’s they use to measure their programs and am continually surprised at the value placed on “Cost per Lead”.  I have been approached by marketing services firms as well that promote their ability to drive higher demand at a lower cost than their competitors.  What these companies sometimes failed to recognize is that driving your program to this metric can end up costing you much more than you realize.  This true story will help you understand what I mean.

Two different businesses are exhibiting at the same show, Exhibitor #1 – sporting a nice 10×10 booth with two personnel and Exhibitor #2 – displaying a 50×50 exhibit with a theater presentation and 19 representatives.  Both companies had the same goal:  Generating as many sales leads as they possibly could over the three day event.  Exhibitor #1 was offering a new iPad as a means to draw traffic, and Exhibitor #2 was giving away a cool t-shirt, an autographed guitar by a famous rock star and they had a bar.

For the duration of the event, Exhibitor # 1 captured 148 leads, Exhibitor  #2 captured 1110. While there is a huge disparity in the number of leads at the event between the two, they are proportionate to their expenditure.

Breakdown:

Here – Cost per Lead looks good

Exhibitor #1 results:                                                   Exhibitor #2 results:

Total Cost = $ 12,250                                                        Total Cost = $91,000

Total Leads = 148                                                                Total Leads = 1110

Cost per Lead = $82.77                                              Cost per Lead = $81.98

In looking at these metrics it appears that Customer 2 benefited from their increased presence and they had a slightly lower Cost per Lead than Customer 1.

Let’s take a closer look now at their metrics taking Cost per Qualified Lead into account.

Fortunately these were two companies who qualified and categorized their leads at capture by allowing the attendee and lead to control how they wanted to be treated post event.  In order to become eligible to win the iPad, autographed guitar or prior to picking up one of the free t-shirts you had to scan your badge and answer a few quick qualifying questions.   Attendees were encouraged to be candid in their response and they were offered an opt-out, i.e. thanks for putting me in the drawing and please don’t call me after the show!  Here are the results for Exhibitor #1 and Exhibitor#2 taking into account three lead categories, sales ready (fully qualified) lead, incubation lead, trinket seeker lead.

Now look at the real cost

Exhibitor #1 results:                                                   Exhibitor #2 results:

Total Cost = $ 12,250                                                        Total Cost = $76,000

Total Sales Ready leads = 31                                           Total Sales Ready leads = 71

Total Incubation leads = 48                                            Total Incubation leads = 295

Total Trinket Seekers leads =   69                                 Total Trinket Seeker leads = 612

Cost per Qualified Lead = $395.16                      Cost per Qualified Lead = $1,070.42

Now, imagine the cost if they did not qualify at capture (all leads treated as if there were Sales Ready).  Validar has built a model that identifies this figure by taking into account the following metrics in its calculations.

Model Assumptions:

  • Fully Burdened wages of our inside and direct sales reps.
  • Step by step process and time associated with manually processing and distributing all leads to sales versus Validar’s automation.
  • Step by step process of nurturing all 148 leads to 31 Sales Ready leads and 1110 leads to 71, respectively.

Cost without qualifying at capture

Exhibitor #1 results:                                                      Exhibitor #2 results:

Campaign Cost = $ 12,250                                                 Campaign Cost = $91,000

Cost to qualify = $2,569                                                      Cost to qualify = $19,271

Total Cost = $14,819                                                             Total Cost = $110,271

Total Leads = 148                                                                   Total Leads = 1110

Total Sales Ready leads = 31                                              Total Sales ready leads = 71

Cost per Sales Ready Lead = $478                         Cost per Sales Ready Lead = $1,553

Since both companies categorized their leads at capture, they are now in a position to make strategic decisions and adjustments with regards to their investment next year at this event.  Exhibitor# 2 did a great job driving traffic.  Was it the right traffic?   Will it meet their revenue goal?    Now, imagine if they did not categorize at capture and assumed those 1110 leads were legit.   They might be able to justify a bigger booth and a car to give away instead of a guitar next year.    Very dangerous!

How do you determine if a campaign is successful?  Let me know your stories.

11 Responses to “Measuring Cost per Lead can be costly…very costly!”

  1. Nice post and I think its safe to say that no matter what industry you are in, success or failure mainly depends on the quantity and quality of your leads. Everyone reading this should see the movie Glengarry Glen Ross, and if you’ve already seen it then watch it again! A.B.C Always Be Closing!

  2. Victor says:

    Love the movie Glengarry Glen Ross. Thanks for you comment!

  3. David Erich says:

    Great stuff here Victor. We see this all of the time at the shows we work. How do you also factor in the measurements around awareness of a new product that you launch at a show, or product demos that some of these trinket seeker leads might have participated in?

  4. Victor says:

    Thanks David. I can only imagine what you run into. This depends upon the metrics that you want to capture. If your goal is to make sure everyone on the show floor sees your product demo then there are some good implicit tracking tools that you can use to capture this metric. Personally I have never found implicit metrics like this useful though. I would much rather ask what they thought, if they think this product serves a prominant need, and if they are interested in learning more. I am a big fan of SMS as means to capture answers to questions like these. The trick is to make sure you dont give away your trinket until you get an answer. Your event metrics will be much more valuable this way and I dont think it’s asking to much to allow your attendees to control how they are treated post event.

  5. David Erich says:

    Makes sense to always have the buyers respond to something after a demo as opposed to measuring pairs of eyes.

  6. Great stuff. If more companies did this type of ROI analysis, my hunch is that trade shows would be doing better.

  7. Victor says:

    Agreed John. It is interesting. Depending upon the role within the company, some leaders dont want to know these metrics. They are afraid they may lose their job if these metrics are made public. Thanks for the comment.

  8. From AIG. The company will forward inquires that are looking for insurance in your geographical area. Of course those leads aren’t enough to live on you have to go get the rest with your own efforts like, chamber of commerce involvement and run your own ads.

  9. Great post, pal. I used some of the information and linked to it in our own blog!

  10. Victor says:

    Thanks Garrett. Checking out and linking to your blog now.

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