Lead Generation: What Are the Costs?

Adding new customers to your sales funnel is essential for sustainable growth and lead generation is a massive part of this. 

In this blog I'm here to show you:

•  The basics of lead gen
•  How to calculate the costs
•  What the average cost per lead is
•  How many leads you need to hit your revenue targets
•  Where to source the best B2B sales leads that turn into qualified sales appointments

Lead Generation: The Basics

According to HubSpot, lead generation is the process of attracting and converting strangers and prospects into someone who has indicated an interest in your company's product or service. Some examples of lead generators are job applications, blog posts, coupons, live events, and online content.

In colder terms, it can involve pulling lists of prospects that match your target profile and persona.

Lead Gen Costs

There are several costs that can be associated with lead generation:

•  Media agencies and operations: the costs to hire an agency for your lead gen efforts
•  Media placement and distribution: the cost of paying external sources such as Facebook and LinkedIn for your ads
•  List purchases: the cost of buying or hiring third parties to receive or generate lists
•  Campaign creation: the internal costs of developing an effective marketing campaign
•  Incentives: Reward costs e.g. discounts, sending gifts

And no doubt many more additional costs from the management of any campaign, to the cost of hiring and training a team to run it.

Calculate COST PER LEAD (CPL)

CPL or Cost Per Lead is the most utilized metric out there.

Formula: Total dollars spent on marketing / # of leads from the campaign = ROI (Boom)

No MBA is needed here!

Marketing Campaign CPL = $16,000 / 500 = $32

Below you will find some CPL Calculators that will save you some time in making the calculation yourself:

• - Unbounce
• - Bright Orange Thread
• - Web FX

Average Cost Per Lead

On average, the cost per lead in 2019 was $198. However, cost per lead differs widely depending on the industry, your target market, and of course the competition in your sector. 

Let’s dig deeper into these numbers and the cost-influencing factors:

Average Cost per Lead by Industry

.

Average Cost of Lead per Lead Generation Channel

Sources: Marketing Charts, HubSpot, Survey Any Place, Sales Lead Automation, Get Base.

Average Cost per Lead by Company Size

Source: Marketing Charts

CPLs by Company Revenue

Not surprisingly, given the above results, the organizations with the most annual revenue are also paying the most for their leads:

Source: Marketing Charts

Do You Need Leads and How Many?

Since the main aim of any lead gen campaign is to maximize efficiency and increase revenue, you must understand how many leads you need to hit the goals of your organization. 

This analysis requires information about your company such as:

•  Target Revenue: the amount of revenue you aim to reach at the end of a period
•  Marketing Driven Revenue: the portion of total income that is acquired due to marketing efforts
•  Average Sales Price (ASP): Net Sales / Number of Units Sold
•  Marketing Driven Deals: Marketing Driven Revenue / Average Sales Price
•  Lead to Opportunity Ratio: how many leads it takes to turn one into an opportunity (%)
•  Opportunity to Close Ratio: how many leads it takes to turn one opportunity into a customer (%)

Lets dive deeper into an example:

Suppose you aim to reach $100,000 in revenue by the end of the month and your marketing driven revenue is $45,000. The average sale price is $5,000.

•  Marketing driven deals: $45,000 / $5,000 = 9

Lead to opportunity ratio is predicted as 3, which means you have the opportunity to turn one lead into a customer for every 3 leads generated. 

•  Number of leads needed: 3 x 9 = 27
  
  

Opportunity to close ratio is foreseen as 6, which means you can turn one opportunity into a converting customer if you have at least 6 qualified opportunities. 

•  Number of opportunities needed: 6 x 27 = 162
  
  

What we can take away from this calculation is that with 162 leads, you would expect to break even, zero percent profit!

Some lead calculators allow you to determine the break-even point and can help guide your marketing campaigns to see much more success than that. 

Service Providers for Lead Generation

A great option to reach your lead goals is to hire an outsourced team to do this for you.

In some cases getting help from outsourced lead generation and sales services is a more effective way to generate leads, rather than investing the time and money in generating those leads yourself.

This can be especially true if you're a growing business with a limited database of prospects.

Even with this, you need to construct an efficient process to turn the leads you generate/receive into customers. No matter what path you choose, you need clear objectives and to track your results to find the best strategy.

Related: 7 Steps to Turn Marketing Leads into Sales Leads into Closed Deals

At the End of the Day It All Depends

What we've seen in this blog is that the cost per lead really depends on the industry, product, type of company you run, and so much more. Even when numbers have been provided, these are still a rough guide.

It's up to you to track and analyze all the variables out there to know what the cost per lead is for your company, and there are many more factors to consider such as the quality of each lead.

I wish you all the success with your lead gen efforts and if you have any questions or thoughts, just let me know in the comments.