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Cost per Lead is a Meaningless Key Performance Metric

cost per sale

Cost per lead is, at the very least, misunderstood and misused.  Cost per lead, at the extreme, is a meaningless key performance metric.

So what?  Why should you care?

Well, if your business is using this as a key performance metric, you could be wasting your time.

Let me give you am example of what I am talking about.  With so many businesses tasking marketing with “generating leads” and with so many of these same businesses lacking a clear definition of what a “lead” really is, there are a lot of ‘marketers’ gaming the system and generating a lot of low cost, unqualified leads.

Give a marketer a budget of $100,000 and task them to generate 100,000 leads at a cost of $1 each…and you will get 100,000 “leads” that may or may not be qualified to buy what you sell.

So what’s the option?

Cost per sale.

Think about it.  Your business needs sales, not leads.

And if, for example, your revenue goal is $100,000 and the average order size $1,000, you need 100 sales.  And if your average order size generates $300 in profit before sales and marketing expense, you want to generate those 100 sales for less than $300 each in order to break-even, at the very least.  (Repeat sales will drive the profit of the buyer/account and your business.)

So if you were to attract those 100 buyers for $200 cost per sale, you generate $100 profit for 100 sales – and your budget should be $20,000 instead of $100,000.

That’s right – your budget is $80,000 too high.

Now, honestly, my example is focused on extremes but the point is that if you focus on sales rather than leads, you’re forcing marketing and sales to work together, come to an understanding of what a qualified lead really is for your business, and holding them both accountable for sales which is the ultimate goal for your business!

 

 

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