How Many “Leads” Does $100,000 Buy?

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A senior marketing executive once got so frustrated with his sales counterpart that he offered the following choices for spending $100,000 on a lead generation campaign:

Option

Type

Quantity

Vertical Qualified

Email Addresses

1

Contacts (Name, Title)

200,000

No

No

2

Companies (Three Contacts)

100,000

No

No

3

Content Aggregator “Leads”

4,319

No

Yes

4

Appointment Setting

117

No

Yes

5

Sales Qualified Leads

81

Yes

Yes

 

The frustration by the CMO stemmed from running various campaigns only to have sales either ignore the leads or complain loudly about lead quality. To the sales VP, a contact (you can buy 200,000 or more of them for $100,000) was undifferentiated from a sales qualified lead.

To state this another way, sales was so accustomed to getting poor quality leads from marketing that they routinely allowed them to end up in the digital equivalent of the lower left-hand desk drawer. To be fair, marketing’s mandate was to generate more leads every year with shrinking budgets. A viscous cycle: Marketing generates leads, sales ignores them. Add marketing automation into the fray and you now have a way to get more poor-quality leads to sales faster than ever before.

Before diving deeper, it is my opinion (after more than 35 years in direct mail marketing and B2B tele-prospecting) that there is no such thing as a good list. I am sure you get bombarded with calls and emails almost every week (if not every day) with hot new list offers. Guess what. All lists are going to suck. List selection is the most important decision in a campaign yet lists are so misunderstood that they are often an afterthought. Go to this CustomerThink link for more in a blog called “Lists and the Rest of the Story.” The most important lesson from that blog is that everything (including lists) is testable. More on that to come.

Option 1: Contacts (Name, Title)

The sales executive did not opt for 200,000 contacts. That was probably a good idea. First, it’s never wise to buy 200,000 contacts all at once. Why? Because lists can be tested—and not testing a list is a time and money wasting decision. Second, there is no way the 20 sales executives, even if they were inclined to do so, would have effectively worked through 10,000 contacts each.

If this is the way your VP of sales is inclined to go, marketing leaders should recommend that 1% sample be acquired (2,000 total contacts or about 100 for each rep). Since you would want to cover all segments of the list, and would also want the results to be as good as they could be, you need to intuitively rank the 2,000-name sample and carefully track results. In the end, it would not be surprising to learn that most of the value of the list of 200,000 could be mined by contacting just a small fraction of the list. Without testing, and without tracking results, you’d never know which list segments were great and which were not. See this blog on market segmentation for more information.

Option 2: Companies (Three Contacts)

This option, unfortunately, is the one the sales executive chose. It was selected because the sales executive had a telecom—every door on every floor—sales mentality. So, each sales rep would receive 5,000 companies (15,000 contacts) and it was up to each sales rep to figure out how to work them. The CMO in this scenario did convince the sales executive to purchase a sample of the data rather than the entire list, and received a commitment from sales that results would be tracked and reported on. Predictably, few if any of the prospects were contacted and there was no reporting on results. The only good news was that spend was cut to $5,000 from $100,000—a lot less wasted money.

Option 3: Content Aggregator Leads

There are many different flavors of lead aggregation. Read this blog if you want a specific example of why I am not a fan of content aggregation (though I recognize it’s a huge business). In summary, we’ve found that only 1.8% of content downloaders were with qualified companies. There are competitors, students—even prisoners—on these lists. Regardless, each so-called “lead” cost our client $23.15.

In fact, the effective cost per qualified company was $2,660. Because a lot of the data provided with content aggregator leads is self-reported, you can’t really control level of contact, vertical, size of company (revenue and/or number of employees), environment or need.

The other thing we have found over the years is that there are professional content consumers that end up being less responsive (they don’t have authority or budget, but they love to read and research and gain knowledge) than the real buyers. In my opinion, the reason that companies still use content aggregators is because they can buy a quantity of leads for what appears to be a reasonable price—and because sales reps don’t follow-up on the leads anyway—and marketing can check the box on delivering leads to sales that, well, aren’t. Ask yourself, what is the chance of finding a significant sized deal by connecting with a $23.15 hand raiser? Slim and none.  

Option 4: Appointment Setting  

The most logical argument against appointment setting is, ironically, at the heart of its selling proposition. The selling proposition is that people who agree to see your sales representative must be more qualified than outbound leads generated and assigned to you. The truth is that in most complex selling situations, anyone who agrees to see your sales representative for any amount of time, without additional preparatory conversation, has more time to waste than most senior level executives I know. Based on “guaranteed appointments,” large companies send their sales force on expensive appointments (whether across town or across the country) with supposedly qualified leads, when as many as three out of five of those appointments are with no-opportunity “prospects,” and at least one out of five never remembers scheduling the appointment to start with.

This approach is pitched as a pure pay-for-performance program. That is why it is so attractive to both marketing and sales. The reality is that the actual cost per qualified lead is substantially higher than the per appointment cost (because so few of the appointments are with qualified buyers) and the actual cost and opportunity cost of travel to appointments is high.

If you are willing to spend a lot of money and waste a lot of time, this is the option for you. 

Option 5: Sales Qualified Leads

Ask a sales rep what they want and they will tell you (and have been telling us for years) that they want more leads and better-quality leads. Quota attainment has dropped every year for the past five years and is under 55%. Sales reps are required, on average, to source 60% or more of the business they close. Why would you place that burden on one of your scarcest and most expensive resources? Fully qualified sales leads are the life blood of any organization. How can the process of creating them be treated so lightly?

Create a table like the one below for all the major lead generation activity at your company. It is the only way to first understand your actual cost per lead and then you can go on to calculate the cost per closed deal:

chart for blog

Summary

Do the math and you find that the five options the CMO presented to the VP of sales at the beginning of this post cost $.50, $1.00, $23.15, $850 and $1,235 per “lead,” respectively.

The fifth option, 81 Sales Qualified Leads, cost $1,235 each. Is $1,235 per lead worth it? Let’s see:

Number of Leads

81

Close Rate1

20%

Number of Closed Deals

16.2

Average Deal Size2

$100,000

Gross Margin

50%

Total Gross Margin3

$810,000

Total Cost

$100,000

ROI Multiplier4

8.1

 

1The closed rate is based on a well-known industry analyst reporting that average companies close about 20% of sales qualified leads.

2The average deal size can be a premised based solution or the net present value of a SaaS deal.

3The margin, for most software and services offers, is low to be conservative.

4For a multi-year SaaS offer companies are willing to have a CAC (customer acquisition cost) of as low as 1:1 in year one.

The 81 leads generated for $1,235 each resulted in 16.2 deals. The margin on those deals was $810,000 and the cost of the leads was $100,000—giving this company an 8X ROI.

Create your own spreadsheets, ask questions, give me some feedback. Thank you!

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