Why it’s so hard to calculate the cost of a sales-ready lead

Two of the biggest challenges generally tie back to attribution and accumulation.

A few comments about attribution

Lead source attribution is a fascinating topic. Your overall goal is to better understand which aspects of your marketing efforts are most important for obtaining sales-ready leads.

This is all about assigning relative value to the various interactions a potential customer has with your company.

There are quite a few attribution models. Some of them assume the first interaction is most important, some assume the last interaction is most important. Some assume they’re all weighted equally, and others follow a variety of other distributions.

While first-touch and last-touch attribution is easier to wrap your head around, as a starting point (until proven otherwise), I generally tend to think it’s most realistic to assign some weighted combination across the various touch points in your marketing efforts.

The problem is that this assumes knowledge of each user’s experience from end to end. In many scenarios you won’t have all that information. In some scenarios you’ll be lacking most of it. In other scenarios you’ll think you have good data, but it’ll be wrong.

Example: If someone:

1. watched a presentation you gave at a tradeshow a couple years ago,
2. read a couple of your articles,
3. clicked on one of your ads,
4. checked you out on LinkedIn,
5. searched for you in Google,
6. reached out via a contact form on your website
7. and chatted with someone from sales.

How much of that do you think you’ll have data on?

Some of it? Probably.

Most of it? Probably not.

All of it? Almost definitely not!

And even if you had most of it, how much cost of each of these do you attribute to that SRL? How much impact did each stage have?

A few comments regarding the cumulative nature of your efforts

Your efforts aren’t isolated. One facet builds on another. You accumulate your presence over time.

The cumulative nature of content

When you develop content, whether for an article, a landing page, a case study, etc., you’re often doing so hoping it will facilitate the sales process over the course of several years, not weeks or months.

Not all content will turn out to be valuable. Some of it ends up being almost useless. But the content that ends up being useful to you will often be useful for years. You may need to refine it along the way. You’ll likely build up other related content around this useful content. You might re-purpose a webinar into an article. You might start tying case studies into articles, adding to the value of both the article and the case studies.

The cumulative nature of your digital footprint

Your digital footprint could include your company’s LinkedIn presence, Google reviews, links to your site, reviews on other sites, publications on other sites, or forums.

You don’t build your digital footprint all at once. It’s not a “project”. It’s a continuous building, evolution, and maintenance process.

Your digital footprint both feeds into, and leverages, your marketing efforts. Links facilitate content. Your content facilitates your LinkedIn presence.

The cumulative nature of your capabilities

You don’t build your capabilities all at once in the beginning, and then leverage them for your customers at the end. It’s a continuous improvement process. Very iterative. Lessons learned from one customer get leveraged for another.

Technology evolves. The work you get involved with tends to evolve over the years. You get deeper in some areas, and steer away from others. These capabilities are foundational for developing content and building up your digital footprint.

The parts of the cost equation that are easier to determine

These two aspects are reasonably easy to determine (at least roughly), but not super useful in calculating the cost of a lead:

1. The amount of money paid to a platform (e.g. Google, Microsoft, LinkedIn) over a period of time.
2. The amount of money directly spent developing a webinar, an article, a website re-do, etc. While it’s not super hard to calculate those direct costs, you’ll be hard pressed to figure out the indirect costs associated with these activities (e.g. what prior content was re-worked? What prior experience made it possible for you to develop the content?). You also won’t even have a sense until after the fact how many leads to divide that cost by.

The parts of the cost equation that are harder to determine

1. How much of the cost of creating that case study should be assigned to that SRL?
2. How much of the cost of that past strategic project that you decided to take on at a reduced price should be assigned to that SRL?
3. How much of the cost of a specific landing page should be assigned to that SRL?
4. How much of the cost of gathering that customer comment on your website should be assigned to that SRL?
5. How much of the cost of something you said on LinkedIn should be assigned to that SRL?
6. The website re-do that improved overall UX?
7. The better hosting provider that improved your website’s page load time by 2 seconds?
8. That one Google review that really resonated with that SRL?

You get the point. It’s hard.

So what makes more sense than trying to calculate the cost of an SRL?

You’d probably like it to be fairly apparent at a first order that the effort you’re putting in is worth what you’re getting out of it.

To head in that direction, start by asking yourself: Is my overall profit margin reasonable?

If the answer is yes, and you more or less want to understand the value of your marketing efforts, start by looking at the big picture.

1. How much are you spending overall on marketing roughly?
2. What % of your revenue is this?
3. What is the cumulative actual and predicted customer lifetime value of your customers?
4. What % of marketing spend is this total?
5. What fraction of my sales-ready leads convert to new business?

Start searching around the internet to find some numbers on % of revenue that’s common to spend on marketing (what’s sometimes unclear with these numbers is whether this number includes internal labor or not).

If these numbers seem reasonable to you, then move on.

If these numbers seem out of whack, consider getting an outsider to take a fresh look as a sanity check. They won’t be as biased as you because you’re so close to the problem. They’ve not put in the blood, sweat, and tears you have. Of course they’ll have their own biases.

If you’re not profitable, then why?

You’ll probably need to start looking bigger-picture than just marketing. What are your biggest costs in the business?

That includes marketing, sales, R&D, HR, accounting, finance, IT, etc.

Some questions to ask yourself:

1. Where are my biggest opportunities for improvement?
2. Do I need to reconsider my business model?
3. Are certain types of customers way more valuable than others?
4. Am I doing certain things that used to make sense but no longer do?

ROI vs cost of a sales-ready lead

If you’re interested in trying to figure out the cost of a sales-ready lead, there’s a decent chance this is part of a larger exercise to determine the ROI of your sales-ready leads. If that’s your goal, you may want to stop before you get too deep into this.

Why?

Because the return is often:

1. too coupled,
2. too predictive,
3. and sometimes too qualitative.

And the cost / investment is often:

1. too coupled,
2. too cumulative,
3. too hard to attribute.

If you’re trying to predict CLV (Customer Lifetime Value) in a complex, relationship-oriented business, you’re likely to have large deltas between your guestimate and reality.

Beyond that, there are several qualitative points of value that are nearly impossible to quantify (see How to think about the true value of a new customer for more on that).

Next Steps

From here you can start to think about the efficiency and proficiency of your sales process, and then, customer lifetime value.

In learning mode? Check these out:

• Assessing the health of a B2B services business

• How to market a B2B service – B2B service marketing strategy tips
• How to align sales and marketing – for B2B services
• How to sell to existing customers
• Digital marketing for engineering companies
• Marketing for custom software development services companies
• Content marketing for engineering
• The pitfalls of a growth goal as a business strategy
• Pros and cons of inbound marketing
• The problem with marketing plans for small B2B companies, and what to do instead