Without effective lead generation, you don’t have a business. That much is clear.
But when you start getting into the details of how much you should set aside in your budget for it, things become a little murkier. How do you know if you’re spending enough? Or too much?
In this article, we will explore the factors affecting how much lead generation costs in today’s business environment. We’ll also look at how best to draw up that all-important lead generation budget.
What is the average lead cost?
How much does one lead cost, on average? It would be great if there were a simple answer to this. But, the picture is fairly complex because there are so many factors that feed into the mix. For example, when you’re considering how to rank leads in importance, you should bear in mind that how you acquire customers impacts how long those customers are likely to stay with you. Which obviously has an impact on long-term ROI.
The first thing to be aware of is that lead costs vary widely depending on the channel. For example, an organic channel like SEO will tend to cost less than paid SEM but can take slightly longer to achieve results.
Another crucial point to understand is that lead costs vary by industry too, even within the same sector. Take business services, for example. The average cost per lead for Financial Services is around $761 for paid channels and $555 for organic. But for companies selling B2B SaaS products, the figures are $310 and $164, respectively.
So when you’re weighing up how much to invest in lead generation, it’s a good idea to start by looking at the averages for your own industry. From there, you can then begin to build your strategy by factoring in specific costs.
Costs to consider for lead generation
There are a number of different approaches to finding potential customers and pushing them toward that all-important lead conversion. When setting your budget, here are some costs you may want to consider.
1. Lead scoring software
Lead scoring helps businesses identify which leads are most likely to convert and generate revenue, enabling sales teams to focus their efforts on the most valuable prospects. It’s a dynamic process in which new data points are continuously added and evaluated so that accurate predictions of lead quality can be made.
Without lead scoring, sales teams risk overlooking valuable opportunities or wasting time chasing down low-quality leads. As such, it’s critical to have a sophisticated lead-scoring tool that enables go-to-market teams to identify and capitalize on the best prospects quickly and effectively.
Breadcrumbs is a powerful lead-scoring tool built for operators that helps them unlock revenue opportunities and find the best prospects to convert into customers. Combining machine learning with an intuitive interface to accurately and efficiently score leads, it helps you focus your efforts on those with the highest likelihood of becoming paying customers. With Breadcrumbs, sales teams can easily identify the best prospects and prioritize their outreach, giving them more time to close deals.
By leveraging Breadcrumbs scoring capabilities, you can go beyond acquisition and focus on clients’ expansion (upsell and cross-sell) and retention (churn reduction). This helps you identify potential customers with the highest likelihood of generating more revenue.
2. Sales intelligence software
Sales intelligence software collects and analyzes information that helps sales teams generate leads. It’s a data-driven solution that can be very effective for many different kinds of business. Such convenience comes at a price, though.
According to the business tech review site TrustRadius, typical fees for sales intelligence platforms range from $39 per user per month up to $319 per user per month. For larger-scale, customized enterprise solutions, it can get even more expensive.
And if you’re hoping to try before you buy using a free option, you’re out of luck. Sales intelligence software service providers generally don’t work to a freemium model.
3. Purchasing lead listings
If that’s a little too rich for your budget, you might want to look at purchasing lead listings. Many companies offer to sell you lists of potential customers. It’s then up to you to do the work of trying to convert those leads into sales.
That said, you need to exercise a little caution here. The quality of lead listings varies widely, and you won’t know how reliable a list provider is until you actually have the product in your hands. The last thing you want is to pay good money for relevant business data and then find the leads are completely cold. Caveat emptor applies.
4. Social media advertising
Social media is big business these days. Advertisers in the US spent $60bn on paid social media campaigns in 2022. And that amount is set to increase by 6.8% in 2023.
The great selling point of social is that it can achieve precise audience targeting. You can choose the exact demographics of the users who will see your ad, meaning you’re more likely to get high-quality leads.
Costs vary by platform and by bidding model. For a basic cost per click on Facebook, you’ll pay around a dollar. You can also pay per thousand impressions or by acquisition (e.g., you pay for every time a customer downloads your app through the Facebook link). If it’s the latter, you’re looking at closer to $3-$4.
5. Reward programs
Customer loyalty programs help you retain existing clients, but they also have a more far-reaching role to play in lead generation. As well as encouraging repeat customers, you can create QR codes sharing discounts and special offers and nudge your customers to make referrals.
Rewarding your customers for their loyalty simply makes good business sense. It increases engagement and can create a sense of community around your brand. If you’re also delivering a top-quality customer experience, it’s much more likely that your customers will be incentivized to recommend your service to friends and family.
In turn, the people being referred to you trust their source. So they are approaching your business with a positive mindset. More often than not, they’ll immediately sense the value of your product and have an ‘aha moment’.
6. Outsourced lead generation
Generating fresh leads is a time-consuming task, but you don’t have to do it alone. If you’d rather focus on your core business and leave the lead generation to someone else, you can.
Bespoke lead generation services deliver high-quality leads at a price. You’ll pay lower fees for a service with a narrow scope, like basic SEM, and higher ones for a more comprehensive package.
There’s a lot you can do yourself, of course. For instance, it’s worth taking the time to set up email automation, as it’s a great way of making the most of your existing marketing lists. That said, if you can afford it, hiring dedicated expertise can be a wise decision.
How to determine your lead generation budget
Your lead generation budget will depend on multiple factors; the size of your business, your growth targets, and the sector you operate in will all impact you.
1. Set a revenue target
First, set a revenue target. The sales team will be able to tell you how much revenue they need to generate and what proportion of that has to be contributed by inbound leads. If you’re aiming to make $500,000 in revenue, for example, and 70% of that figure should be inbound, the calculation goes like this:
(70/100) x $500,000 = $350,000
2. Find out the number of leads you need
The next step involves two calculations. First, you figure out how many customers you need to hit your revenue target. Then, you calculate how many leads you’ll need to generate that number of eventual customers.
So let’s revisit the above example. Supposing your average revenue per customer is $2,000, that means you’ll need to land 175 new customers ($350,000/$2,000). You then take a trip up the marketing funnel and find the percentage of leads that typically convert into customers. Say it’s 3%. So the total number of leads required is:
(100/3) x 175 = 2,500
In other words, you know that you need to generate 2,500 leads altogether to hit your revenue target.
3. Calculate cost-per-lead (CPL)
The CPL formula looks like this:
As we’ve already established, there’s no one-size-fits-all CPL you should be targeting. What’s more important is to compare how your CPLs are faring across channels. If you find that one channel seems to be getting more expensive than expected, that probably merits further investigation.
It’s best to use top-quality online accounting software to keep track of how much you’re spending on each marketing channel. The right software can help you extract the necessary data, making it much easier to calculate your CPL.
Calculating your average CPL gives you a base you can work from when drawing up your budget. But we’re not quite done yet.
4. Measure lead-to-qualified-lead ratio
Just as important is to measure the lead-to-qualified-lead ratio. This represents the proportion of leads that are actually converting into sales. When calculating the number of leads you need to target, measuring how the real figure changes over time is vital.
It’s crucial to remember that while standard lead-scoring techniques will give you an approximation of how valuable each potential lead is, a sophisticated lead-scoring tool is able to collect information from different sources and incorporate them into your model. When you come to review the budget, you’ll be able to refine it based on even more accurate predictions.
How much should you be spending on lead generation? Let your goals lead the way
Bringing it all together, how much can you expect to spend on lead generation? As a rule of thumb, most companies devote between 5% and 20% of their annual budgets to marketing. It’s a wide range, but that’s because organizations allocate spending according to their circumstances.
A startup in New York may decide to allocate 30% or even more of its budget to marketing in the crucial early growth phase. Meanwhile, an established corporation expanding overseas might prioritize spending on nuts-and-bolts operational tech like accounts and invoicing software for UK, European, and Asian markets. Although it will still devote a hefty proportion of the budget to lead generation, since its strategic focus is on localization, the balance will be different.
Similarly, your lead generation budget should be aligned with your business goals. Define your strategic targets and work from there.
Generating leads and achieving those elusive conversions isn’t one size fits all. It’s often best to experiment to see which channels deliver best. What works for one business may not be the most effective choice for yours.
That means your lead generation budget has to be flexible enough to adapt quickly to a changing environment. But if you start with a solid, data-driven strategy and respond as the situation evolves, you won’t go far wrong.