How Much Does Lead Generation Cost?

Trying to build a perfect marketing campaign may be a hard task. And if you ever spent a significant amount of money on marketing and later wondered if it was a reasonable use of your cash, you may dive a bit deeper into generating leads, answering an important question: “How much should lead generation cost?”

Figuring out a lead cost can give you more confidence in running lead generation campaigns. You will be able to determine whether your campaign was effective or not. And in the end, it can guarantee the sustainable development of your business.

What is Lead Generation?

In simple words, lead generation is the process of attracting viewers to your website and converting them into someone interested in your product or service. Many think that there must be a conversion in lead generation. But this is not a complete truth. Even if a visitor comes to your site but doesn’t take any action, they can still count as a lead. 

The important thing to learn is that there exist two types of leads because of the different characteristics of marketing and sales terms:

1. Marketing Qualified Leads (MQLs) are the potential customers that your company managed to attract. These could be people who just visited your website. 
2. Sales Qualified Leads (SQLs) are customers that interact with your business by purchasing your product, downloading an ebook, and so on.

What are Lead Generation costs?

Most people who own businesses believe they waste a lot of money on leads and prefer to get them at zero cost. However, you want to consider reserving a part of your budget for lead generation if you want your marketing campaign to be successful. For example, you can use sales intelligence software. It will allow you to make the sales process faster as you won’t have actual people generating leads. But be attentive when choosing a provider as you will need verified data.

Another thing you can do is to buy a list of sales leads. It may look like a reasonable investment, but such leads are usually of very low quality. You will have to evaluate all the leads on the list manually. However, you can outsource it to a company that does lead generation. But you need to understand that marketers who do the calls on your behalf may not have enough information about your business. Eventually, it might lower conversion rates.

A good idea would be to pay for lead advertisements on social media. But it is quite expensive because a team of marketing specialists will run the campaigns and monitor the budget for online ads.

The best option for effective lead generation is to hire a team of marketing specialists and properly train them. In the end, you will get a team that is completely aware of your business which means the process of generating leads will be better and the quality of the leads will increase. Choose the best option for your business depending on how much money you are ready to invest in lead generation. 

How much should a lead cost your business?

Lead generation is the key strategy that can assist you with converting a simple visitor into a paying customer. Many marketers agree on the fact that lead generation should be a top priority for any business.

But before you decide on how much you are able to spend on lead generation, you need to figure out your cost per lead so you won’t pay more than they actually cost.

Cost per lead or CPL is the cost of one lead or rather how much you need to pay to get a single lead. In order to calculate the cost of one lead, you need to know the total amount of money you spend on a marketing campaign and the total number of new leads. Then just use a simple formula:

Total Marketing Expenses/ Total New Leads = Cost Per Lead (CPL)

For example, if you invest $1,500 in your marketing campaign and you get 10 leads, your CPL is $150.

Average Cost per Lead

In 2021 the average cost per lead was $198. But this number may be useless for evaluating lead generation costs. All because lead costs vary significantly depending on the industry. In addition to that, the target market and the competition in your area of business can also influence the cost of leads.

For example, the most expensive leads are in the technology field, and the cheapest ones are in the field of travel and tourism.

Here are examples of an average lead cost depending on the industry:

How many Leads do you need?

Every marketing manager’s goal is to make their campaigns as effective as possible. In order to do that, you need to understand the number of leads you actually need to reach the income goal of your business.

You need to conduct a thorough analysis, considering all the data elements of your business, such as:

• Targeted Revenue — your planned income you want to acquire at the end of a specific period;
• Marketing Driven Revenue — the part of total revenue that is received due to a marketing campaign;
• Average Sales Price (ASP) — Net Sales / Number of Sold Units;
• Marketing Driven Deals — Marketing Driven Revenue / Average Sales Price;
• Opportunity to Sale Ratio — how close you are to transform a single lead into a paying customer out of the total amount of leads (%);
• Qualified Lead to Opportunity Ratio — the number of leads required to transform a single lead into a paying customer (%);
• Lead to Qualified Lead Ratio — the necessary analysis of how you will transform one lead into a customer.

So let’s figure out how many leads you need in this example.

Let’s assume you want to get $100,000 income by the end of a current month while your marketing-driven income is $45,000 and the average price for sales is $5,000. You need to calculate Marketing Driven Deals — $45,000 / $5,000 = $9. The Opportunity to Sale Ratio is foreseen as 3, so you are able to transform one lead into a customer out of 3 leads. 

Then, let’s calculate the number of opportunities you need: 3 x 9 = 27. 

The Qualified Lead to Opportunity Ratio is predicted as 6, so you have a chance to transform one lead into a paying customer if you have 6 leads at least. And now you can calculate the number of leads you actually need for your business 6 x 27 = 162.

So now you know that you need 162 leads at least so you could get zero profit.

You can do it manually but consider using some lead calculators which will help you figure out the break-even point, make all the processes of lead generation faster, and eventually make your marketing campaign more effective and successful.

How to spend less money on Lead Generation?

When you calculate the cost per lead for your business, and in case it is higher than you expected, you will have to try lowering lead generation costs. There are several options on how you can achieve that.

1. Widen your database of leads

It is one of the easiest options you may try to achieve your goals. For example, you may use Google Chrome extensions for LinkedIn. They will help with accessing and exporting email addresses so you will be able to contact your ideal customers directly. The advantage of such an extension is that you won’t have to create a contacts database manually anymore, so the process of getting valid B2B contact data will become easier and cheaper.

2. Pay attention to your landing page design

You need to pay close attention to your landing page, it should include an offer that is clear and understandable so you can optimize the conversion process. Especially if you pay for traffic on Facebook or other sources of leads. It’s a good idea to test your landing page before launching. You may just show it to someone and ask for their opinion to figure out if your offer is clearly visible and if they can understand it at first sight.

3. Monitor your target audience

Getting optimal CPL might be difficult if you don’t create a profile of an ideal customer for your company. You need to understand what type of customers or companies will need your products to improve the cost-effectiveness of all your efforts to optimize lead generation.

4. Use an inbound marketing strategy

Gathering bottom-of-the-funnel leads who will be later converted should look natural and organic so you can attract more leads. As an option, you may offer various types of content for every single stage of the funnel and nurture contacts through to the sale. It is a lot easier and more effective than, for example, paid advertising.

5. Get rid of poorly performing channels

Whatever method of collecting leads you choose, remember to always monitor the lead generation cost in every campaign. It will help you invest your resources in the most efficient strategies and eliminate those that unnecessarily increase the cost per lead.

Know Your Marketing Strategy and Potential Risks

As you already understood, there’s no simple answer to how much a lead should cost. However, some methods can help you calculate the cost of a single lead for your business. Just make sure you remember a couple of things:

• Adjust your marketing budget according to the strategy of lead generation you’ve chosen. And don’t think you will waste your money because an effective marketing campaign will eventually pay off inviting more customers and increasing your revenue.
• Always analyze your current and potential customers, their needs, and requirements so you can determine lead costs and better adjust your budget. 

Now you know that in some industries, the average costs of leads are higher than in others, but you shouldn’t focus solely on the average lead cost in your industry. It is always better to calculate a cost for a single lead just for your business and therefore be able to adjust your budget according to the received data. Make sure you know your marketing strategy and all the risks you may face. In the end, a successful marketing campaign is key to increasing your company’s revenue.