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 10x10 booth with two personnel and Exhibitor #2 - displaying a 50x50 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.


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.