So what is a lead anyway?
I recently sent out a survey to our customers asking what value they place upon leads and the number of different responses was roughly equal to the number of people who responded to the survey. Not only is there not much of a standard as to how to value a lead, but there appears to be very little agreement as to how to even define what a lead is. I realize that the specifics will differ from company to company, but I'd like to attempt to place a stake in the ground and provide both a broad definition as well as a method for valuation.
First, what is a lead? I'll throw down the gauntlet and state that every potential buyer who (1) provides their contact details and (2) takes specific action to request product information relevant to your offering is a lead. If they have not taken action - such as if they are a name you have bought from an industry list or event list - then they are not a lead.
(This does not mean they do not have value. In fact, names acquired in this manner - let's call them "prospects" - often go for anywhere from a few cents to over a dollar depending on how targeted and current the list is.)
But a lead is someone who has taken action like request a white paper, a demo, a free trial or even direct contact from a vendor - and has provided their contact details in the process. By taking action, a prospect in effect becomes a lead. More specifically, an unqualified lead.
And once you have a lead, it is the responsibility of the marketing staff (not the channel!) to qualify the lead by doing things such as determining need, timeline and budget before handing them off to sales.
So now that we have distinguished a lead from a mere prospect, what price can we assign to the value of a lead? This depends on four things:
1) The price of your product.
2) The % of your sale price that you are willing and able to offer to the channel.
3) The rate at which your sales team closes qualified leads.
4) The rate at which your unqualified leads convert to qualified leads.
Let's assume your price is $10,000 and in the interest of simplification there are no additional fees that you charge. Let's also assume that you are willing to pay your channel a 20% commission on sales, that your sales team closes 10% of its qualified leads, and that 50% of your unqualified leads convert to qualified leads.
Simply multiply all of these numbers together to arrive at a $100 value per lead. Of course, the devil is in the details. Your close rate will probably differ from channel to channel depending on the quality of their audience, how your call to action is framed, etc. So you will probably end up calculating an average lead value across all campaigns, as well as campaign-specific lead values to better determine where to spend your marketing dollars.
Thoughts? Any disagreements with the logic? Please email me at ortner@capterra.com.
First, what is a lead? I'll throw down the gauntlet and state that every potential buyer who (1) provides their contact details and (2) takes specific action to request product information relevant to your offering is a lead. If they have not taken action - such as if they are a name you have bought from an industry list or event list - then they are not a lead.
(This does not mean they do not have value. In fact, names acquired in this manner - let's call them "prospects" - often go for anywhere from a few cents to over a dollar depending on how targeted and current the list is.)
But a lead is someone who has taken action like request a white paper, a demo, a free trial or even direct contact from a vendor - and has provided their contact details in the process. By taking action, a prospect in effect becomes a lead. More specifically, an unqualified lead.
And once you have a lead, it is the responsibility of the marketing staff (not the channel!) to qualify the lead by doing things such as determining need, timeline and budget before handing them off to sales.
So now that we have distinguished a lead from a mere prospect, what price can we assign to the value of a lead? This depends on four things:
1) The price of your product.
2) The % of your sale price that you are willing and able to offer to the channel.
3) The rate at which your sales team closes qualified leads.
4) The rate at which your unqualified leads convert to qualified leads.
Let's assume your price is $10,000 and in the interest of simplification there are no additional fees that you charge. Let's also assume that you are willing to pay your channel a 20% commission on sales, that your sales team closes 10% of its qualified leads, and that 50% of your unqualified leads convert to qualified leads.
Simply multiply all of these numbers together to arrive at a $100 value per lead. Of course, the devil is in the details. Your close rate will probably differ from channel to channel depending on the quality of their audience, how your call to action is framed, etc. So you will probably end up calculating an average lead value across all campaigns, as well as campaign-specific lead values to better determine where to spend your marketing dollars.
Thoughts? Any disagreements with the logic? Please email me at ortner@capterra.com.
2 Comments:
Hi Michael,
I view a lead from a qulification point of view. If it is a company that has posted on WMS list but only needs an inexpensive inventory control package.....and I cant from a cost of doing business provide it and make it worth our while....it is not a valid lead for me. What do you think?
This example is in a bit of a gray area. Assuming they did not request a demo specifically for you, or provide their needs through a filter that led them to you, then they are simply a prospect (and obviously not a good one for you) and NOT a lead. However, let's assume they do end up contacting you for a demo. In that case, I would call them an unqualified lead that would be vetted by the marketing team and should never get to the sales team.
The primary takeaway here is that the point in the process where they take action to either contact you specifically, or request to be contacted by vendors such as you through a variety of filtering criteria is the point at which they cease just being a name or prospect and actually become a lead.
The secondary takeway is that once they become a lead, they still need to be qualified by someone in your company before being deemed "sales-ready."
Every qualified lead was first an unqualified lead and every unqualified lead was first a prospect. The further along in the process, the more valuable it is. A qualifed lead may be worth $400, whereas an unqualified lead may be worth $100 and a name of someone in your target audience may be worth 50 cents.
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