Marketing Maths, CRM Systems And Cost Per Lead: A Recipe For Success

Hollywood tends to glamorize the sales industry, casting devastating handsome actors as the successful salesman with looks to kill and a golden tongue. You'd be forgiven for thinking to succeed in sales you need to be a fine physical specimen or at least have undeniable charm. Well the truth is sales is a numbers game and anyone who understands the first step (marketing) and the math that goes with it will be a hit.

The most important number in marketing is cost per lead. Cost per lead influences the type of product you sell, how your sales team sells it and at the end of the day the profit you derive from each new customer.

skills Being a good salesperson will help of course (by giving you a better conversion rate) but if the initial numbers don't stack up you'll end up out of business, sales skills won't save you.

So how do you calculate cost per lead? The most basic formula is: money spent on marketing ÷ number of leads generated = cost per lead. For example if say your marketing budget for the month is $3000 and you get 203 new leads that month your cost per lead is $14.78.

In the real world marketing is not so tidy. Using the example above, if you divided your $3,000 equally over 3 different marketing strategies such as online advertising, a direct mail campaign and a newspaper ad your actual results would not be as evenly split as your budget. You might find that 137 of those leads came from your direct mail campaign, giving you a cost per lead of $7.30, which is very reasonable. On the other hand your online advertising might have only drawn 50 new leads to your company, making the cost per lead in that scenario $20, which doesn't leave your sales team a lot of wiggle room. And finally your newspaper ad which cost $1,000 only returned 16 leads and each of those 16 leads cost $62.50. Yikes!

To effectively measure your cost per lead you need to chunk down the campaign level. Because some marketing activities will perform better than others and if your marketing budget is limited you should try to stick to the strategies that give you a low cost per lead. Generally speaking lower costs leads give you the best opportunity to turn a profit.

When you start calculating cost per lead on an individual campaign basis you have more useful data but it is more difficult to obtain. To make things simple consider investing in a CRM system with campaign tracking. And don't worry, even though I use the term 'invest', many CRM systems allow you to start capturing all this data for $100 per month of less. One bad marketing method avoided and you've made your money back 10 times over.

Make sure your staff enter the source of every new client into your database and these CRM systems will allow you to generate reports that show you how many clients are attached to each individual campaign. From there it is easy to determine your cost per lead. Simply divide the cost of the campaign by the number of leads generated.

Your lead quality will vary. Some leads are more likely to become customers while others are just fishing for information. So use your CRM system to indentify the cost per new customer. For this figure take the original cost of the campaign add any costs associated with the sales process/funnel (costs that you incurred turning the leads into customers such as sending out information packs, follow up calls etc) and divide this by the number of leads that were converted into customers.

Marketing really comes down to knowing the numbers and with our cost per lead formula coupled with a good CRM system you'll be off to a great start.

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