The Dangers of Using Cost per Lead as a Metric to Measure Marketing

The Dangers of Using Cost per Lead as a Metric to Measure Marketing:from ViewPoint | The Truth About Lead Generation by Dan McDade
Twice over the past two years I blogged about the dangers of using cost per lead as a metric to measure marketing.
As a foundation, I published three blogs in 2012 in which I outlined three critical elements that impact B2B lead generation costs in the complex sale:

1. B2B sale complexity impacts cost-per-lead—to recap, I have heard marketers (even senior ones) state that cost per lead for anything from life insurance to a $100,000 plus software solution “should be about $300”. In a review of articles and blogs today I found answers that ranged from $20 - $1,000 plus. Do you believe that an enterprise software solution lead, as an example, should be budgeted to cost $300 or less? I don’t.

2. Lead definition and sales funnel stage impact cost-per-lead—there is a lot of lip service going around these days about the lead definition issue, but a Sr. VP I was talking to yesterday summed up the “state of the industry” as he sees it: “Well, since we can’t seem to get sales reps to follow-up on leads, we are going to try to tele-sell a $25,000 trial with a money back guarantee. If we turn those trials over to sales instead of leads, maybe then we can get them to do their job”.

3. Lead qualification and lead nurturing processes impact cost-per-lead—at the recent MECLABS 2012 B2B Summit (Orlando, FL) Brian Carroll reported 64% of all B2B leads generated go directly to the sales force without qualification. Staggering, when you consider that an average of just 5% of marketing leads generated are sales qualified. Sending marketing leads to sales without pre-qualification and expecting them to follow-up on them is like me wanting to look like George Clooney—it ain’t going to happen.

In this whitepaper (eight pages, three steps to fixing wasted lead generation in your company, no form) I write about a client that buys “leads” for $23.15. Roughly 2/3rds of all the leads this company generates for any period come from this source. The marketing team sees this as a “great source of leads”. But, let’s look under the hood. After qualification (1.28% of these leads convert to sales ready leads), the actual cost per qualified lead is $2,662.24 as compared to $1,357.25 for proactive, outbound targeted prospecting and nurturing. So, cost per lead in this case is not very indicative of the value of the lead.
Which do you think would be a better solution for your sales team? Send them 1,000 leads generated at a cost of $23.15 each where 1.28% of them are actually sales qualified? Or, send two fully qualified leads at roughly $1,150 each? Of course, the answer is complicated primarily because sales reps have been conditioned to expect poor quality marketing leads. Here, however, is how I think you should look at this challenge in order to fix this problem in your company sooner rather than later:

For more information, see the article: Why Your Sales Force Needs Fewer Leads
So, how much do you think a lead should cost and why? I would love to hear from you.
My answer is, probably more than you think, but probably a lot less than you are currently paying.