Determining the Best Marketing Spend for Lead Generation
by Adam Basheer, on 04-Dec-2023 10:00:00
Determining an appropriate marketing spend for lead generation can be a complex process. The costs vary widely depending on the channel and industry.
Several factors to consider when setting a lead generation budget include lead scoring software or sales intelligence software.
For example, a business relying heavily on social media advertising might face different costs than a company investing in outsourced lead generation. Therefore, understanding these variables and how they impact your marketing budget is crucial. F4M offers tools and solutions to help businesses manage and optimise these costs effectively.
- Setting Targets and Calculating Costs
Most companies allocate between 5% and 20% of their annual budgets to marketing. To determine the marketing spend for lead generation, you should set a revenue target and calculate the number of leads needed to achieve it.
A critical metric to consider here is the cost-per-lead ('CPL'), which measures the cost-effectiveness of your lead generation efforts [1, 4]. For instance, if your company spends $5000 on a marketing campaign that generates 100 leads, your CPL would be $50. Accurate tracking of CPL and measuring the lead-to-qualified-lead ratio can help you allocate your budget effectively.
- Understanding and Calculating Customer Lifetime Value ('CLV')
Customer lifetime value is a crucial metric to assess the long-term value of acquired customers. It involves determining the customer's lifetime value, determining customer acquisition costs ('CAC'), building the CAC model, calculating cost per won deal ('CPWD'), and developing a strategy to bring CPWD and CAC together.
For instance, if a customer's lifetime value is $1000 and the cost to acquire that customer is $200, the CLV would be $800. This informs businesses about how much they should be willing to spend on acquiring new customers.
- Evaluating the Quality of Leads
Knowing the conversion rate from leads to sales can help evaluate the quality of leads generated. Another important metric impacting profitability is the cost-per-sale, calculated by dividing the number of sales generated by the total cost for lead generation.
For example, if a company spends $2,000 on a campaign that generates 10 sales, its cost-per-sale would be $200. This allows businesses to understand the effectiveness of their lead-generation efforts in terms of actual sales.
A customer of F4M managed to acquire six promising leads in the past month after spending $350 on advertising. Considering that each lead is expected to have an average initial order value of $2,500 and is likely to make repeat orders four to six times a year, the amount spent on advertising is relatively minimal in comparison.
- Optimising Conversion Rates and CPL for Effective Lead Generation
Improving cost per lead ('CPL') can be achieved through retargeting, optimising ad campaigns, and analysing performance by device and network. Ideally, a good CPL should be equal to or less than the gross profit per sale.
For instance, if a business has a gross profit per sale of $100, its CPL should ideally be $100 or less. This ensures that the cost of acquiring a lead does not exceed the profit made from a sale.
Determining the appropriate marketing spend for lead generation is crucial for businesses to achieve their goals. Consideration of factors such as lead generation costs, customer lifetime value, and lead quality helps in making informed decisions. F4M offers comprehensive tools and solutions to assist businesses in optimising their marketing spend for effective lead generation.
We encourage readers to explore the fit4market.com website for more details and to leverage their expertise to drive successful lead-generation strategies.