Lead Generation: How Much Does Each New Customer Cost?
Do you know how much you are paying for new customers? Have you got a clear analysis of how many leads you want, over what given time and what a successful conversion rate will produce in revenue for your company? Whether you use inbound or outbound marketing, knowing how much each customer costs to acquire equips you to take on the challenge of lowering that cost and funnelling sales leads more effectively.
Establishing the cost of each new customer starts with mapping back to how you got those customers in the first place. This means establishing:
- Who your customers are
- What brought them to your website
- The creation of content
- Your marketing route
- What defines a lead
Then you have to measure the cost of each process, eventually establishing a benchmark ROI that, ultimately, is the bottom line for your CEO.
Define your qualified leads
The first thing to consider when trying to get new customers is defining the criteria required for a contact to become a lead, include:
- The number of qualified leads you require
- A time period in which to generate those leads (3, 6 or 9 months)
- Clear description of what a qualified lead is
- Conversion rates of each qualified lead (conversion ratio)
The most important aspect by far is conversion ratios. If you set up a marketing campaign designed to generate 250 leads and 25 of them are established to be real prospects then your conversion ratio is 10%. The next step is trying to find those leads.
Inbound versus Outbound
According to a HubSpot article an inbound marketing strategy is more inexpensive than an outbound marketing strategy. The strategy of inbound marketing is to find or be found by potential prospects [link to What is Social Prospecting blog]. Inbound marketing techniques include:
- SEO and organic search
- social media
- creating content
Whereas outbound methods involve more traditional types of campaign:
- advertising campaigns
- exhibiting products and services
It is clear that the upfront costs involved in organising an outbound marketing campaign are more expensive than those required for inbound.
An alternative to outbound marketing is a potential shortcut in which an online lead generation company can generate leads and it crosses over to inbound social strategy too.
How lead generation companies work
Lead generation companies provide businesses with prospective customer contacts based on certain criteria [link to buyer persona blog]. They might then offer either postal or email addresses that are - somewhat - vetted as prospective customers for a company’s products or services. Providing lead lists to businesses can be costly, but they can replace much of the hard work required by outbound marketing.
The actual costs involved in gaining customers
The costs so far for determining what your customers actually cost involve preparing the criteria for defining what a lead is, deciding whether to use inbound or outbound marketing and the use of third party lead generation companies.
With this information it is possible to assess the costs incurred in producing qualified leads.
The biggest contributor to cost is the effort required - a qualified lead can cost anywhere from £5 (because sometimes a well-directed Facebook post can win a customer) to £500 (a campaign can take much longer for results to be seen), and you can overheads such as wages and equipment.
HubSpot estimate that an inbound marketing lead costs $135 as opposed to $365 for outbound marketing, but there are no hard and fast rules about this, results will differ depending on your product, industry, target market, economy and seasonality.
Cost Per Lead
The steps taken to establish the costs of each new customer effectively defines your CPL (Cost Per Lead) strategy. leads can be directly mapped back to their source; making it possible to find exactly where the customer came from - for instance did they click through to a landing page, blog or offer?
Then it’s all about working the bigger picture to see how many hits to the website it took to get x number of customers.
When you know exactly how much it costs to generate each new customer, you can then shift your focus to lowering that cost. In other words can you do the same thing but streamline the method more effectively to lower the cost of acquisition and increasing revenue
Over time you will get better at identifying what content and strategy attracts the most qualified leads and the cheaper your marketing strategy will become - at least in terms of cost per customer.