How much is a qualified lead worth to your business? It’s one of the questions I ask almost every prospect we meet, to establish whether we can help them achieve their goals and, ultimately, if we’re a good fit for the project.
I recently asked this of a prospect who thought for a moment and said he’d be happy to pay £10 – £20 for a lead. Knowing the industry this business was in and the cost of the services they provided, I needed to know why he’d chosen such a token amount.
So, I asked how he came about this figure and he said that he felt this was a “reasonable amount to spend”.
Curious as to his reasoning, I probed further and asked what the lifetime value of a client is. (This is where many businesses have no idea, but I’d highly recommend you do the sums and work out how much your average client spends with you in their lifetime as a customer and how much profit you make from that. This figure will guide you in knowing how much you can afford to spend to acquire a new client. Don’t be afraid to share these numbers with your marketing team or agency as it gives them a target cost per acquisition and keeps them focused on making your campaigns profitable.)
He said between £20k and £30k depending on the project (that’s profit, not revenue!).
Me: And what’s your conversion rate? (This is the next number we need to know as not all leads will convert into business. This figure will let you work out how much it will cost to acquire a client. You might find this in your Analytics account or in your CRM system.)
Him: 1 in 3
Me: So, the most you want to pay per client is £60?
Him: Yes.
He works in a competitive market so attracting leads through channels like Google Ads is likely to set him back £300 – £500 per lead. £500 per lead would mean he’d be paying around £1,500 per acquisition (new client). A hefty amount for many businesses. But when your profit is at least £20k on a project, and most projects are completed within 6 months, it’s a no-brainer to me.
What I’m essentially saying is, if you give me £1,500, I’ll give you £20,000 in return – sound like a good deal?
The amount you can afford to pay per lead will vary depending on your industry – plucking a figure like £20 out of the air could mean you’re going to rule out marketing opportunities, so it’s important to know your numbers and not focus on the investment – focus on the return!
We’ve worked with companies in the past that are happy to see their Google Ads campaigns break even based on year 1 turnover; not even turn a profit. This sounds like a really bad business decision, right? However, they retain 80+% of their client based in year 2 and beyond, so the profit isn’t always made upfront, rather it’s a long-term game that they can afford to play. They all know this because they know their numbers, and this gives them the power to compete (and succeed) on platforms such as Google Ads and Bing Ads.
Need help finding out how much you should spend on a lead? Drop us an email and we’ll be happy to talk this through with you.
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