About this guide
Having been involved in the digital marketing space since the early days of Paid Search, the question of what constitutes a qualified lead, as well as understanding its importance, has sometimes been ignored by B2B marketers.
The consumer faced B2C market is far more aware of qualified leads and sales, as well as the cost attached to them. This has been driven by powerful ecommerce platforms that have been honed and refined over the years.
With the lines blurring between B2B and B2C, as well as the growth of the B2B Omni Channel, the need for marketers
How do you realistically calculate the cost to a qualified lead? Why is it important?
Well, this guide will help you arrive at a number of solutions to calculate this.
The importance of calculating cost per qualified (CPQ) lead
Before we do this, let’s look at what a qualified lead is and how you can track and improve the quality within a given budget. This guide is not definitive but is designed to help your approach to cost, attribution, and budget allocation.
Originally published by Rachel Mepham in 2021, this is an updated version that takes into account other areas impacting B2B leads and how Marketers and Chief Marketing Officers (CMO’s) and Chief Revenue Officers (CROs) can look at how to:
– Calculate value of qualified leads
– Why not to start with a budget
– Understand where your leads come from
– Working back to get results
So, this is an easy-to-follow guide on calculating a realistic Cost Per Qualified (CPQ) lead
B2B companies often say they have a budget of X to put towards their marketing. When questioned what this is based on, it all too often fits into one or more of these areas:
– We used the same budget last year
– It’s roughly what we feel our competition are using
– We’re spending more on other areas this year
– Been passed down from those above
Don’t start with a budget
It may sound odd, but the mistake is often made at the start of the process by focusing on the budget rather than the end goal. How are you calculating what the budget is if you do not know how much you are willing to pay for a qualified lead?
Why is this wrong?
Let’s say you have £60k per month to spend on digital marketing. Already it is being viewed as a “budget” or a “cost”, as opposed to an investment for return.
Because of this, the agency or in-house team are focused on spending that £60k per month, when actually they should be focused on the end goal and working on how those goals might be achieved.
Secondly, how does that £60k per month relate to your business, product, or service costs? What is your margin on each sale?
If you think about it, how can anyone accurately determine what budget they need to invest when they don’t know how much each lead or sale is truly worth to them?
They can’t, so, therefore – don’t start with the budget!
Understand where your leads and sales come from
Before you pile a load of money into any marketing project, it is important to understand what is driving current success and where you are expecting the additional growth to come from.
Potential channels most likely to drive sales are:
– Account Management – Upselling services
– Account Based Marketing (ABM) – New opportunities within current clients under new divisions
– Sales calls and outbound sales – Engaging contacts, old clients, creating new connections
– Word of Mouth (WOM) and referrals
– Marketing – Increasing awareness driving both net new leads and supporting sales outreach
Questions to ask
– How much is currently being invested into each of these new business techniques?
– How much are you getting back from each investment?
– How much are they influencing each other?
– How much does each one cost in time, resources, money, etc…?
There are often so many unknowns even with the most sophisticated tracking and CRM integration. However, there is always a benchmark you can put in place that will give you a better understanding of where to direct your efforts.
Start at the end – work backward
Where are you trying to get the business to and where does marketing fit into that business mix?
Questions to ask
– For example, if your overall growth target for the business is a 20% uplift in revenue year on year, where are you expecting that growth to come from?
– What does that growth actually look like in revenue?
– How does that break down to the number of new sales needed?
– What is the Average Order Value (AOV) of each sale?
Let’s work it out –
Start by breaking down what your inbound sales look like. This may vary month on month, in which case you need to expand the time range and take an average:
Direct source of sales:
– Account management – 30%
– ABM – 10%
– Sales calls and outbound sales – 5%
– WOM – 50%
– Marketing – 5%
The chart below demonstrates an example of the activity output, compared to the direct source of the sales being made.