What is the value of a lead worth?
Or more properly what is the value of a lead to YOU and to your business? This is a question which has perplexed small business owners and entrepreneurs for ages, so its not surprising that its one I’m wrapping my mind around right now to grow my business. One way to think about it is the commonly cited 30% of business operating costs some firms spend on marketing, advertising, and public relations services. This provides an interesting guess at what a lead should cost you. However, even in a scenarios where lead costs you 50% to 60% of your operating costs, you can still create a profit if you (especially if you have low overhead costs to offset the high cost of lead generation). Some companies devote large portions of their marketing budgets to creating a gigantic sales force whose entire purpose is to generate leads. This is particularly true of individuals that operate businesses where bricks and mortar real estate is not a significant outlay. The time and resources that you save by having leads generated by other means may well be worth the extra expense. If you think about it, real estate firms are built on the notion that agents are one half lead generation and relationship builder, and one half closer.
Back to the original question on the bottom line dollar worth of a lead. (the ROI of leads if you will) I’ve been toying with this question in terms of my own business, which only earns about $300 to $500 for small business clients for more local oriented marketing and $3000 to $5000 for larger clients that are trying to earn top ranking across the board. So for clients on the low end, a lead is worth about $50, and on the high end might be worth between $500 to $1500. (of course this begs the question of how qualified the lead are. a warm lead is worth this much, a lead via search engines that calls me up might be worth 1/3 of this…assuming I convert on 1 in 3 of the leads.) Derek of Pronto offers this analysis of lead value which is straightforward and helpful:
What is your conversion rate of a qualified lead to client?
Qualified lead would be a client that meets your criteria in terms of potential LTV perhaps measured by number of PCs, vertical or other measure. It should also meet the BANT criteria: Budget, Authority, Need, Timing. They could be the perfect target but if they just signed up with someone else they fail BANT.
And the math
If you spend $1000 on marketing that produces 10 qualified leads that convert to one client with a LTV of $20,000 you have an ROI of 20:1 with a $100 cost per lead. My suggestion is have some reasonable back-of-the-envelope math to get to a value of a lead. That’s your acid test for marketing ROI because in most cases marketing is going to bring you leads, not clients.
It might be helpful to share ideas on the following questions;
What’s the value per qualified lead?
Do you already have a number in mind? If someone came to you and said “I can deliver you qualified leads” what would you pay? I talked to someone the other day who was paying a telesales company $450 and was quite happy. Others have told me they would pay $100. This is btw not the same as a sales commission – a lead is what you give to the salesperson (which might be you with your salesperson hat on). I’d view these as two separate things.
What are leads worth for plumbers and painters?
Painters and plumbers might average between $200 to $600 per job. This means a quality lead is probably worth about $25 to $100. Also, if a plumber is decent or has a relationship marketing process in place you can increase that value by 1.1 to 1.25. (assuming one in ten or up to one in four of your clients can will refer you to other people) Whether you do that by providing great service, expertise, experience, flexibility, discounts, or direct incentives for referrals (free Amazon, movie tickets, deep discounts or $50 for a nice dinner). Actually if that person becomes repeat business, this number can sigificantly amp up.
What is a lead worth for a real estate agent?
Lets say you sell houses that are $175,000. This means for each house you sell you might get $12, 250 for selling a house. So a lead in this space could be worth around $4000. This doesn’t take into account that this person may refer other people, so it might multiply your lead value by 1.2 to 1.25 or more.
What is a lead worth for lawyers and attorneys?
Lets assume you are a personal injury attorney and the client wins on average $15,000 per case for each case you win. That means each win is worth $4,500 for you. So a quality lead is worth $1000 to $1500 for you. A low level lead might only be worth $25, $50, or $100. (more realistic numbers are probably a little lower than that, but with repeat or referal business or a decent in court record these numbers aren’t too far off)
What is a warm lead worth to your small business?
This is an introductory post….and I plan to revisit it. I’m going to ask friends who are in these professions to see if they can help provide clarification on these issues. What do you think….are these about right? What are leads worth in your profession?