Diminishing Lead ROI


For the better part of two decades I’ve been in the lead development, cultivation and delivery business. As the marketing guy behind one of the longest running and most successful lead development activities in the embedded computing space, I’ve seen first hand the power of providing quality leads to organizations across diverse verticals and technology functions. I was preaching cheap lead generation, when it wasn’t quit in style — so for me to come out against lead generation is a change in orthodoxy that would turn heads among my colleagues.

What’s wrong with lead generation? Two things.

First, valuation of leads changes greatly as you move through time and penetrate your total available market (TAM). More simply put, the more leads you generate — one of two things becomes true:

A.) New leads are generally less valuable because they require more cultivation to close.

B.) New leads are generally more expensive to acquire because they are more difficult to find.

The dawn of the information age means there are a myriad of tools at a savvy marketing or sales manager’s fingertips to cultivate new leads. Whether reaching out on LinkedIn or posting new whitepapers to one’s website and collecting contact information — leads will vary greatly in their value, timeliness and cost to close.

Second, no lead is created equal. I manage a team of excellent sales professionals. One of the interesting phenomenon that I often see with them is that they will go after the big deal with lower close potential rather than service multiple smaller, more certain sales prospects. Those familiar with the sales funnel instinctively know that the closer the contact is to buying — the better the lead.

Marketing managers must always keep their lead generation goals in the context of proximity to close. Of course, more leads sounds better. But where does a marketing manager with limited resources draw the line in terms of chasing their TAM?

Lead Generation Graph

This graph is a visual representation of a general principle. The closer to your TAM, the more it costs to develop and cultivate new leads. Its almost always true that within any given campaign, it takes more resources, frequency and exposure to generate the next lead. When clients come to us asking about lead generation campaigns, inevitably the first question is “How much is your Cost Per Lead?” And of course the answer, “It depends,” rarely hits home with clients.

Part of what confuses marketers is what constitutes a lead? Here are some mistakes that marketers often make when making lead-gen decisions:

  • Impressions aren’t valuable. There is a trend in B2B markets that impressions don’t count. Impressions with focus and frequency make a huge difference in cultivating new leads. Marketers that aren’t hitting 10% of their TAM every month with impactful messaging are putting their brand, product and company at risk. Lay the foundation before you build.
  • Leads should cost a fixed amount. Marketers are notorious for our numbers. We like to count and measure everything. “Our average lead costs $50.” The reality is that lead costs should be calculated in relation to the size and proximity to conversion. Generally, the smaller your TAM – the more you will pay per lead.
  • Leads should be sale ready. As a marketing service professional I always profess to my clients that you don’t want me to get you too close to the sale. If I could guarantee that X% of my leads would bring your organization $X,XXX,XXX – trust me, I’d charge you for it. Sometimes the best lead values are those more easily attained, but only partially qualified. I find the best balance for marketers is to create a pool of potential that can be refreshed and refined over and over again.
  • The best leads are ready to buy. If you have a lead that is ready to buy without much effort, chances are good that you’re leaving money and margin on the table. The best deals always require some friction. Its what separates a good salesperson from a great salesperson. Its what separates good marketing from great marketing. Creating additional value for the prospect has to be a core feature of lead generation and qualification.
  • Lead conversion can be tracked and measured. I’m going to create a lot of enemies in the marketing and sales SaaS industry, but its time to put this myth to bed. Automated metrics provide a lot of data, but they cannot anticipate the buying behavior of your clients. If I (or anyone) could orchestrate a sale, I’d be the richest person on the planet. Qualified lead sources provide the necessary fuel for good sales engines to stay running. The reality is that most companies know they need X,XXX number of leads per month to keep the sales channel full. But as the old adage goes, I know my marketing works — I just don’t which part.

As a marketing service provider I always tell my clients…

I can provide you an industry specific impression for $0.14. I can provide you an industry specific buying-behavior lead somewhere between $100 and $300. And I can provide you a sale ready lead for 10% of revenue. Where would you like to buy in?

As a marketer you should always be considering what features are most important to your sales goals?

  1. Am I giving up margin to have lead sources do the work for me?
  2. Is cultivating leads for the future a part of my overall marketing strategy?
  3. How much effort have I put into laying the foundation for strong lead generation activities with impression and awareness oriented marketing?
  4. Can a higher cost per lead streamline my sales process or limit it?
  5. How much of my TAM is currently in my prospect database? Would efforts be better served on competitive and awareness oriented marketing?

Lead Generation is an incredible tool, that when used in context and with clarity of purpose can supercharge an organization sales channel. It can also constipate and confuse everyone looking to do business with your company. Make sure your strategy makes sense…

And good luck.