The CPL is Dead! Long Live ROAS!July 28, 2016
So you lowered your cost per lead (CPL) – Congratulations! Here’s your digital marketing trophy.
Now, let’s get to the important question: Did you make more money?
This answer gets complex as we dive into profitability and it brings us to the age-old tension between marketing and sales. Marketing finds a way to drive more leads at a lower cost over to sales. A marketing win!
Sales get the leads and work them. “How were they?” the marketing manager asks.
“Eh, no good,” replies the sales manager.
While the bottom-line cost for the leads was low, the top line results that measure sales (and company!) success failed to manifest. And so we return to that age-old sales-marketing tension.
For many companies, marketing and sales are still not one big happy family. But if they want to achieve a win-win outcome, they need to get there. This requires a shift for both groups. Marketing needs to manage toward sales goals and optimize marketing spend based on what sales sees and reports.
If you’re in marketing that may sound rough, but sales aren’t getting off lightly. They need to be fully accountable for reporting and documenting…yeah, I don’t think I need to go further. Marketing folks have it easier right?! (Hey, I’m the President of a company and spend a lot of my time in sales activities…I know how much sales folk like “paperwork”.)
For marketers, success requires a paradigm shift. There is not a single metric that can track all leads any more. So let’s say it together. CPL is dead.
Today, digital marketing requires understanding the value of each lead from a unified view across sales and marketing. Even further, marketing teams need to optimize their media campaigns based on metrics that account for all stages of the sales funnel.
The Next Generation of Lead
A lead’s value varies based on media type and channel. In some cases, like with paid search, the lead value may fluctuate based on geography, time of day, and even temperature. While a marketer could apply a broad-brush approach to the cost of a paid search lead, there’s really a big difference between a lead that costs $1 when the temperature is below 60 and $.50 when it’s above!
And then there’s the value of the lead type. What is the value of an eBook lead, a proposal request lead (are they just browsing?), an online demo, and a phone call? And where do these different leads fall in the funnel? An online demo show results in a close has a lot more value than a middle-funnel sales demo given to a wider audience. Thus, CPL is an irrelevant metric that can often lead marketing teams to optimize toward the easier but lower value lead types.
A powerful lead generation system may produce a ton of leads, but may not drive the end goal, a closed sale. It’s vital to understand the conversion rate by each channel and the average lead value per channel. But it’s also to understand even channel leads may need to be broken down to understand the channel’s true value.
Forget CPL, What’s the ROAS?
Instead of lead cost, conversion rates and cost per acquisition create more informed metrics.
For example, many companies offer different product levels. A company’s high-end products and services produce bigger profits. A lead for high-end products may cost more, but the close rate and profit will be much higher.
And for some companies, the SMB client may be a lower cost lead, but not bring in nearly as much as an enterprise level client. The cost to acquire a $100 SMB lead may seem like a steal compared to the $700 cost for the enterprise client. But…both the immediate and ongoing revenue may make the enterprise client more desirable.
If we assign values to every lead type based on post-lead conversion rates and average sale, we can move from optimizing towards the lowest lead cost to a ROAS model based on attributed values for lead types and lead quality.
What We’ve Seen at BFO
Cost per acquisition throws CPL out the window.
For most of our customers, Facebook leads don’t produce nearly the same quality as Linkedin. But Facebook leads offer a cheaper cost to acquire. When we look at profit, we’ve found that despite the churn of Facebook leads, they can generate nearly the same profit per investment as Linkedin. Lead quality and lead value is the great equalizer to enable smart cross-channel budget optimizations that maximize profit.
How You Tie it All Together
It comes down to analytics.
At BFO we have used a combination of Bizible and Unbounce to track all parameters from marketing through to the sales process. You can also apply advanced techniques to collect and analyze data like integrating your platform directly with SalesForce or using Marin Software to automate and optimize your campaigns based on all the action points beyond the lead.
So here’s what to do…first, forget about the CPL. Assign values to all of your lead types and lead stages. Treat these values like real revenue and move to a ROAS model. To do this, you’ll need marketing and sales working toward the same goal…
…so schedule a meeting for your marketing, sales and analytics teams (you need to make sure the data can be captured and reports scheduled and produced). Buy them a couple of pizzas, soda and provide coffee. Then lock them in the conference room. Don’t let them out until all issues are resolved, a plan is agreed to by the department heads, and a plan for accountability has been implemented to ensure communication between sales and marketing.
Oh, and after that meeting, take your analytics team out for a beer.
Check out our ebook, The Marketer’s Guide to Managing and Maximizing Lead Generation Success and learn how you can effectively gain greater quantities of high quality leads.