How Much Should You Spend on a Qualified Lead?
Marketing budgets are an ongoing aspect of business that need to be considered, speculated about, and debated. One of the top questions asked by small business owners is how much to spend on qualified leads. According to Heinz Marketing, the problem is not to ask how much to spend on a “qualified lead” as much as it is “how much you are willing to spend on a customer or conversion?”
As a digital marketing firm in Miami, we get this question a lot from our clients, so let’s consider all of the different arenas of advertising from PPC like Google AdWords to social media marketing like Facebook Ads, and consider not only how much to spend but how to measure success and make adjustments accordingly.
How Much To Spend on a Qualified Lead
Max Budget and Lead Value. There are a few things to consider when you are establishing advertising and campaign budgets, including your max budget (this you really have to determine based on your own profit and spending) and the anticipated profit for each customer you receive.
Once you complete your campaign you can divide the revenue ($X) by the total number of leads (Y) to get the average revenue per lead. This ultimately constitutes the “lead value” for your campaign. Pittsburg Internet Consulting has an awesome lead value calculator that can be very helpful in setting your own budget per campaign. Go check it out here.
Obviously your goal is to make more than you spend on marketing efforts so that you generate a profit. You want your cost per lead to be (significantly) less than what you anticipate the profit per lead being. Here are the most important formulas to consider in marketing budget costs and returns for generating leads and ultimately customers:
Campaign Return= Total Leads * Close Rate * Average Sale Amount * Average Margin – Campaign Budget
Lead Cost = Campaign Budget / Total Leads
Lead Value = Campaign Return / Total Leads
Cost Per Lead. Another thing to consider is that the marketing cost per lead is going to be different in a PPC campaign than it is for a trade show, sales call, or content marketing. You might end up paying $12 for a PPC lead in an AdWords campaign, where you could end up paying $50 for a lead at a trade-show. When you determine your budget you have to decide where your target market is most likely going to go to purchase in your industry. If it is primarily online, then you definitely want to allocate a large portion of your budget to your PPC campaigns and social media advertisements. If direct marketing is going to be a good way to reach your target audience, then make sure your campaign budget reflects that. You can learn more about cost per lead and successful marketing campaigns here.
There is No One Answer. It is always so hard to write responses to a question like “how much should you spend on a qualified lead,” because there is really no one answer. Depending on your industry and campaign you may not want to spend more than $5 per lead, while in some cases it is worth spending $200 on a lead if it will lead to a profitable sale. The key is understanding your budget, the profit a lead can generate, and making educated decisions about where to allocate your marketing budget. You can read more about the complexity of lead valuation (with examples) here.
Measuring Success & Adjusting Your Strategy
Monitor Your Campaigns Closely. Monitoring conversion and sales on every advertisement campaign you run is critical for making sure that you adjust spending per lead in the future. In order to be successful you have to fine-tune and understand what works well and what does not for your individual business, but also against your industry competition.
Check out this Infographic on the 14 most important metrics to focus on in your digital marketing campaigns.
It is really important to monitor how much you are spending and how much profit/return you are receiving on each campaign (your ROI) so that you can consider which methods are best for reaching out to your target audience.
Adjust Your Strategy. There is no “one size fits all” in digital marketing, and as you might have gathered, a lot is individual experimentation and really figuring out what works well to achieve the customers that are interested in your brand. If you notice that you are getting the lowest cost per lead and the most conversions on your social media advertisements, it is a good strategy to start funneling more money and attention to that form of marketing. Conversely, if you realize that social media is not the best way to reach your demographic, keep using the platforms for brand awareness, but put marketing money into PPC or industry events.
Spend to Earn. Marketing budgets can be especially frustrating for small businesses, but everyone knows that a marketing budget is often closely tied to successfully generating qualified leads. Once you decide what your marketing budget is, you can closely monitor what works and what doesn’t so that you can maximize your marketing budget and have the highest profit margin possible.
While there might not be one answer on what to spend on a qualified lead (it could be $1 or $100 depending on your campaign or industry), the important thing is measuring and calculating your ROI and cost per lead so that you can make informed decisions on digital marketing efforts. By monitoring your campaigns and measuring success you can adjust your future campaigns and strategy to increase your profit and fine-tune your digital marketing efforts.
How have you dealt with qualified leads in the past? Do you have a preferred advertisement method to reach your target audience? Let us your story and your thoughts in the comment section below.