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I see this question plastered all over forums and LinkedIn Groups, as well as hearing it from my clients. The standard response I see to this question online is always simply “it depends on the industry you’re in” – but there’s much more to it than that.
Indeed, the industry you operate within will have an impact on the amount you should expect to pay for a new business lead; however, the direct reasons for the determination of a cost per lead are much more granular. The cost of a business lead can depend on:
The size and breadth of your target market should be an important factor to help you determine how much you should be paying for an average lead. If, for example, your target market is very limited and small, you should expect your cost per lead to be higher because your prospective customers or clients carry more exclusivity in the sense that they are hard to come by and therefore valued more highly.
Working out the value of a market can be very complex, which is why it can often be easier to segment your target markets by carrying out market research before you implement any marketing campaigns. This is particularly important if you are going to be carrying out the campaigns in-house, using complex sources with various channels. Segmenting your target markets by prospective value is a good place to start.
The value of your prospects is important when working out the value of your target market. It’s also important if you are using a more direct lead source, such as purchasing leads from a lead generation company, on a cost-per-lead basis.
The breadth of your target market – in other words, the mix of high, medium and low value prospects – is likely to have a bearing on your cost per lead too. Having a very small, segmented target market may well carry a high cost per lead, but if – for example – the market is 80% low value, 15% medium value and 5% high value in terms of prospects, you should ideally be paying less than if your small target market contains only high value prospects.
Another aspect to bear in mind is the fact that your competition may also be targeting the same market as you. Whatever you do, you don’t want to get into a bidding war with your competitors because it will simply saturate the market by pushing the lead cost up so high that it becomes unprofitable.
Your optimal cost per leads will also depend on the platform you are using to generate leads. For example, if you’re using PPC it will cost a certain amount (depending on who is managing it ), but the cost per lead will differ if you used telemarketing or email marketing – even more so if you buy leads from a lead generation company.
Work out what you can afford to pay for each lead based on your client conversion rate and the average value of a client. Then look at your options:
Even if you’ve had experience in using certain lead sources in the past, don’t rule them out from fear of them being too expensive – you may be surprised at the value you can get from well-established and experienced agencies.
Get lots of quotes from third parties and eliminate the channels that are too expensive for you to make a decent return on investment. Then work out if you could do any of the work in-house to save money on agency fees – but be careful, it’s not wise to try something like PPC advertising yourself if you haven’t done a lot of research and passed exams etc. because it’s very easy to waste a lot of money on it. The same goes with your time; it’s valuable, so if you have other important things to be doing make sure you use the expertise of other professionals.
Here are some quick tips for working out whether your cost per lead is “good” or not:
To find out more about how you can generate leads cost-effectively, contact Koozai today.
Cost Per Lead via BigStock
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