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Leads Have No Value

Leads have no value. More precisely put: leads have no intrinsic value.

Glengarry Glen Ross made this point rather emphatically. The value of a lead depends tremendously on its origin.

About 100 years ago I ran the “alternative media” program for a good sized cataloger. The goal was to collect names and addresses that we could add to our mailing list. Gathering names and addresses is simple, the phone book is full of them, but as any cataloger knows “mailing the phone book” is a disaster because the names haven’t been qualified in any way. They’re not worth nothing…they’re worth less than that.

So, we used alternative media: package inserts, blow-ins, bind-ins, tip-ins, bang-tails, card decks, you name it. We’d target a demographic, get a “request a catalog” postcard in front of folks who looked like our prospects and hoped they’d request a catalog.

We learned something early on: if the postcard is postage paid you get a whole lot more names than if you make people pay for postage. However, we also learned that the quality of the leads was so much worse when we did this that we were far better served forcing the people to apply their own stamp.

We also learned that people who checked our name off on a long list of catalogs they might be interested in receiving were even worse prospects.

The point is: how the lead is collected impacts the value of the lead tremendously.

Advertisers who base their online marketing objectives on lead generation need to be mindful of this fact. A cost per lead efficiency metric requires constant monitoring of lead value.

Indeed, tricks used in “conversion optimization” need to be carefully evaluated not just by the ratio of leads to visits, but by the quality of the leads captured. Making the “call to action” clearer can help capture more leads, but may also depress the quality of those leads somewhat. Giving incentives for people to sign up will almost certainly have a huge impact on lead value and should therefore impact what an advertiser is willing to pay for that lead.

MEASURING LEAD VALUE

This requires lead-gen firms to carefully assess the value of leads gathered from different marketing channels, different types of keywords, during different times of the year or different days of the week, and using different pitches to capture the contact info.

Some of this can be accomplished by effectively tying the sales resulting from those leads back to the source, indeed back to the click(s) in the online world.

However, folks will often protest: “My sales cycle is so long, there’s no way to know how the value of leads collected today will compare to the historic averages.” That’s true, but there are mechanisms to at least get a good sense of their value fairly quickly.

With robust data, one should be able to calculate by source, by channel, by type of keyword, etc, the fraction of leads that close within X days of first contact. X will be larger or smaller depending on the business and the volume of leads being divvied up. The point is, while it may be true that half of the leads close more than 180 days after the initial contact, some fraction will close within the first week, or two weeks or month, and the comparison of those fractions by channel, by date, by incentive type may give a very accurate read on their relative value and how those values compare to average.

Gauging these values early allows marketers to make smarter decisions about how much to pay for each type of leads, and whether that new landing page design with the higher conversion rate is actually helpful.

The farther the success metric is from dollars in the bank, the harder it is to employ data driven marketing techniques wisely. Some use that complexity as an excuse to throw up their hands. We say it’s an opportunity for the smart analyst to make a big impact.

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Comments
8 Responses to “Leads Have No Value”
  1. Great post, George! I always learn something from this blog.

    We have a whole set of variables that help us determine the value of a lead. Some are pre-click and affect how we spend marketing dollars on PPC, SEO, etc. And some are post-click that affects the way we answer the phone, etc.

    We have a fairly complicated sales-cycle (i.e. a click today may not equal money in the bank for 4 months and there are lots of other touch points in between), but it is doable and worth it to understand the projected value-per-lead for the marketing dollars you are spending today.

    Making the decision to get more advanced with how we value our leads has made huge impacts for our business. If you are not doing this today, start with the understanding that this type of analysis is a journey and not a destination. You can always improve and squeeze our more value—which is a good thing.

    Chad

  2. Thanks Chad, your point that it’s a journey not a destination is dead on. Your firm is darned lucky to have you leading them on that journey!

  3. Hi George,
    Agree with your blog post of course. I just want to add a math points of view. The value of a lead should be assessed against the final revenue metric. A simple regression will tell you what a lead is worth on average and what is its overall intrinsic value. This can be used for long tail management. Consider: You have two long tail keywords, both with no conversions. However, one has 10 leads and the other has none. You want to bid the first one higher assuming all leads have the same intrinsic value.

    The other thing you can do is segment out the leads across as many dimensions you have to understand the potential value clusters of leads. This can be used strategically to attract more profitable leads. For instance, lets say you find out that free trial leads coming in are more valuable when they interact with your website for more than 10 minutes. You might want to have more interactive tools on your landing pages to increase engagement. Alternatively, you might want to do an “intervention” i.e. if someone has been on your site for more than 10 minutes, you could engage with them via a chat window to prevent a drop off. ( Typically this is a paradoxical situation. The longer someone is taking to convert, the less likely they will eventually convert but if they convert they will be of higher value on average).

    Anyway, just a few of my thoughts!

    Sid

  4. Thanks for stopping by, Sid. Great thoughts as always.

  5. Another great post George. Yes, tying the sales to the originating source or click is very important. The lead sources are not equal, thus the leads created are never equal in quality either. Now if we don’t track the sales/conversion on a per source and per keyword basis, we could end up spending $ on the low performing, even on the non-performing lead source or keyword. The job wouldn’t be that easy based on experience, but it’s necessary.

  6. Mara says:

    I just stumbled across your blog and you have a new dedicated reader. I love this article and it is very true. It is hard to determine the “value” of a lead, name or information. Also, it is hard to determine what source (search, display, image ads etc) drives the best quality. Sometimes, we focus too much on the cost of the lead rather than the final point: the revenue generated.

    Your campaign may generate 100 leads at a CPA of $100 and only create $10,000 in revenue. However, maybe your next campaign yields 50 leads at $200 each but generates $30,000 in revenue! It is important to realize that sometimes quality costs more but can return more in the long run. Unfortunately, it sometimes is hard to get a client to realize this.

    Also, you can do a lot to increase your own lead quality through your thank you page and keeping prospects engaged. Someone early in the buying cycle can often be moved forward through content on your site so when you can work them, they are in a much more qualified position to buy or sign up. It goes along with what Sid said above. We have chat on a lot of our landing pages.

    Great post, can’t wait to read more!

  7. Mara, thanks for your fine comments and for stopping by our blog.

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