I suppose we should first define what a qualified lead is. The answer would vary for different businesses, but in general, it’s a prospect that fits your client profile and is in the purchase cycle.
The Purchase Cycle
- Discover
- Research
- Buy
Each of these elements of the cycle are important, but in a perfect world, you would only pay for the prospect that is in the Buy phase of purchasing. I have always told clients that the first 2, Discover and Research, are what SEO is for. The Buy is for PPC. But, each business is unique.
You really want to capture people more than one time in this cycle because the more times they come across your name and website, the odds are increased that they will choose you to contact when they are ready to make a decision or buy.
- All Internet Marketing is designed to position your company throughout the purchase cycle.
- All Internet Marketing has a cost associated with it.
- The closer you get to the Buy decision, the higher the cost of the lead. Example: PPC
I have discussed many times the various methods of reaching prospects online, but the real decision that you have to make is what are you willing to pay per lead in each of the cycles. A Discover and Research lead should definitely cost less than a Buy lead, but a lot of times, the cycles are blurred so that you end up with an overall cost per lead in your business. Not to worry, that’s really common.
Some facts:
- The average cost per client online is between 15% to 50%, with the average really falling into the 25% range today for a lot of companies.
- If you are selling a product online, and you are wanting to drive traffic for that product, the average profit margin better be able to absorb a 20 – 25% ad cost. This means your average profit margin needs to be 35% or more, and the average sales price should be over $100 to be safe.
- For service companies, it’s a bit easier. Most services have little cost associated with them other than supplies or personnel. If your average invoice is $500 with only $100 in real costs, then you can guess that it wouldn’t be out of the question to spend $100 to acquire that new client online.
But we are talking about acquisition costs. What is the cost per lead?
You need to know your closing percentages. Do you close 1 out of 5 leads? 1 out of 50 website visitors? With this information, now you can know fairly well how much you can spend per qualified lead to help you in managing your advertising budget online.
Examples
- You sell a product for $100 online. You sell 1 out of 50 website visitors – 2%. Your profit margin is 25% – or $25 per sale. You will only break even at $.50 per lead. Your average cost per click for the lead must stay below that, or you must increase your closing ratios, or you must increase your profit margins.
- You offer a lawn maintenance service and your average client is $100 per month. You sell 1 out of 50 website visitors – 2%. Your profit margin is 75% – or $75 per month. You will only break even at $1.50 per lead. Your average cost per click for the lead must stay below that, or you must increase your closing ratios, or you must increase your profit margins.
Of course, there are other considerations like lifetime value and such that must be included in the marketing considerations.
I have a few clients that are in very competitive markets and only break even on the first sale or will lose some money, but since 35% become repeat customers, there margins are very high over 6 months, therefore their “real” cost per lead could be much higher. It’s always my goal to keep the expenses as low as possible for all my clients and to focus on their profitability – not mine.
There is an old saying. Help people get what they want, and you will get what you want.