A ‘prospect’, also known as a lead can be defined as a potential sales contact, i.e. an individual or organization that expresses an interest in your products or services. While it is true that having leads for your product or service is preferable to not having leads, there’s no doubt that some prospects are more valuable than others.
So how do you determine the average value of a lead?
For most businesses, ‘qualified sales leads’ are what bring in revenue. But the process of taking someone from being a ‘prospect’ or ‘target’ to becoming a ‘buyer’, requires some finesse. It involves bringing someone into your community, providing them with some value and letting them get to know your business, before they’re willing to spend money with you. This process is known as lead generation.
Acquiring a new client has three steps:
- Lead Generation
- Lead Qualification
- Lead Conversion
Sometimes steps one and two can be completed in tandem, creating a qualified lead. And a qualified lead has value, which can be calculated by the costs required to generate the lead.
But what exactly is a qualified lead? A qualified lead is a prospect created by a company’s marketing department and vetted by their sales team. After initial contact from marketing, sales continues the interaction exploring their interest and capability to purchase. If the sales department adds them in their queue, the lead is deemed “qualified” as a viable prospect.
How do you assess the value of a qualified lead? By evaluating it against your conversion ratio, which is the percentage of warm leads that actually convert to a client. This includes the average lifetime customer value, retention, future purchases, referrals and testimonial value. So much is a qualified sales lead worth exactly? This will be different for every business. If you know how much you can earn from each lead, then you can figure out how much you are willing to spend to acquire that lead, and each business will have a different budget. For example, if every qualified lead you received was worth $25 in lifetime customer value, how much would you be willing to spend to acquire that lead? S10? $15?
However, not all leads are created equal? One element that often drives lead value is the source of the lead. Let ’s say you have 2 sources of leads – the first (A) are people who provide their email addresses to download some material from your website. The second (B) are people who dropped their business card in a fishbowl at a trade-show where you had a booth. Source A is a lead that has shown interest in what you do and the products and services you offer. Source B is not. While the overall value of the lead might remain the same, when you segment them by source, you are likely to see a variance in performance. Here, a lead from Source A is more valuable than from Source B.
Now you know how to calculate what a lead is worth to your organization. But how can you actually use this in your business decision-making process? A key way to use this information is to evaluate and rank the lead sources you’re using, like in the example above. And if you’re paying for leads, then you already know the average cost of a lead from each source. If your return from such leads is less than average, then you’re losing money and it’s time to look for leads elsewhere. You can also use the value of a lead metric as an internal benchmark for your marketing program – to compare month-over-month, quarter-over-quarter or year-over-year the quality of the leads you are generating. The higher the average revenue generated per lead, the more efficient your program is.