Three Metrics that are More Useful than Cost per Lead

Updated: March 16, 2010

Introduction

In one important way, the marketing department is a lot like college. How so? Well, because, like college (as my mom once told me): "it's an expensive place to play."

B2B marketers (my background) are typically expected to invest an amount between 3 and 7 percent of revenues into marketing programs. Most of this budget is intended to drive new customer acquisition. Like most marketers, I take this responsibility seriously. And I have found through my consulting work that most B2B marketers, like me, build frameworks for tracking my investments and managing them to better performance.

Observations

I have observed that a lot of companies have embraced Cost per Lead as a key metric in the management of their marketing portfolio. This measure can be useful in comparing marketing programs (and/or vendors) against each other provided that the definition of a "lead" can be applied equally to all lead sources.

But there's the rub.

Having a healthy, diverse portfolio of marketing tactics means attracting buyers from different places, with different offers, and at different stages of the buying process. The fact that everyone filled out the same registration form on your web site (or that a vendor delivered a contact to you matching your lead capture requirements), does not account for this variety.

And so a portfolio management framework that is overly biased to driving down the cost per lead metric can work against you. To illustrate, consider this example (click link below):

Metric #1: Pipeline Dollars per Dollar of Investment

This comparison showcases why managing excessively to cost per lead can limit marketers' ability to help sales build its pipeline. In this example, the leads from LeadSource B are a better value for the marketing investment. The leads convert at a higher rate, and the average deal size is also higher ($2500 vs. $1800). This reflects a population of buyers that is further along in their buying process and has a larger budget, on average, than their counterparts from LeadSource A.

BTW, the word investment is used deliberately. The antiquated term "marketing spend" is not only an example of poor message management (who wants to fund "spend" in this climate?) but it also communicates that the dollars are only moving in one direction: out. Modern marketing is not about spending. It's about investing and managing investments to predictable returns.

Metric #2: The Rotting Lead Rate

Part of managing better returns on your investment in leads is making sure the lead management system you are feeding creates minimal to no waste. In nearly every B2B sales environment, the old axiom, "time kills deals" applies. By extension, it is also true that time kills leads.

Many complex processes are described colorfully to the uninitiated as how "the sausage is made." Whether we're talking about legislation, product development, or revenue generation, it's a useful analogy. Applying it to marketing and sales, we can ask the question: how long should our sausage ingredients (leads) be allowed to sit on the factory loading dock before moving down the assembly line? At what point do our ingredients (leads) begin to become unusable?

I call this a "rotting lead." The first time I used that term was in a high-velocity, inbound sales environment. In that environment, a rotting lead was any lead delivered to a sales person that did not have an activity recorded against it (call, voice mail, email) within the first 24 hours after delivery. The "rotting lead" rate is simply the percentage of leads that are past their expiration date (e.g. 24 hours, 3 days, 1 week from lead hand-off) at any given time.

When I first used the term "rotting leads" in a conversation with my counterpart in sales management, I was concerned about introducing unnecessary friction into the marketing and sales relationship. To my delight and surprise, my colleague not only liked the concept, but liked the phrasing, and wanted to see real-time reports in our CRM to help him manage "lead rot" out of his process. This was a great learning moment for me.

Metric #3: Leads (and/or Opportunities) In Process per Sales Rep

Continuing with our sausage factory metaphor, let's consider a scenario where one or more of the assembly lines becomes overloaded with ingredients (leads). One of several things will tend to happen:

1. The line stops to process the ingredients it already has on the conveyor belt.
2. The ingredients are handled too quickly resulting in defects in the sausage (yuck!)
3. Some of the ingredients are not handled at all because they don't fit on the crowded conveyor belt, so they fall on the floor (double yuck!)

To the factory foreman (Head of Sales), the net result is sub-optimal sausage production due to waste and inefficiency. The foreman has a vested interest in making sure that his/her factory is "load balanced" or "resource leveled." The marketer shares that interest because an inefficient sausage (revenue) factory drives down marketing ROI.

Conclusion

When compared to Cost per Lead, these three metrics are more useful diagnostics of marketing investment performance. And, more importantly, these metrics measure marketing AND sales as a single unit.

Companies that measure (and manage to) Pipeline per Dollar of Investment, the Rotting Lead Rate, and Leads/Opportunities In Process Per Sales Rep create the right incentives to drive lead management transparency, marketing and sales productivity, and predictable revenue growth.

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