Over the last two weeks I’ve covered a number of angles on lead nurturing. Last week’s Sherpa B2B newsletter took a look at five lead nurturing tactics, and yesterday’s blog post was on why you should consider nurturing leads lost to competitors along with tips on how to do just that.
Today, MECLABS’ Executive Director of Applied Research (Full disclosure: MECLABS is the parent company of MarketingSherpa), Brian Carroll provides insight on how to look at both cost-per-lead generated in terms of lead nurturing and measuring the success of a lead nurturing program through return-on-investment (ROI).
Cost-per-lead is the wrong metric
Although many marketers are interested in the cost-per-lead number, Carroll says this is the wrong metric to focus on. He explains by saying if a lead is generated at a low cost, but never contributes to the sales pipeline, it is a wasted expense. Great cost-per-lead number, but terrible (non) contributor to the bottom line.
Carroll believes two metrics that are better measures across the entire process are cost-per-opportunity and cost-per-pipeline revenue. Cost-per-opportunity helps you understand how Sales accepts and pursues leads, and in the long run that metric shows if those leads are actually helping Sales, and if Marketing is contributing to the pipeline.
He says to take a look at your entire marketing expense-to-revenue, and then contrast that number to expense-to-revenue after implementing lead nurturing. He adds lead-to-sale conversion rate is the most important metric in the entire process.
Carroll states, “We have examples of nurturing programs returning a ten-times return for every dollar spent, and we had other examples of nurturing programs where it is a fifty-times return for every dollar spent, meaning for every dollar that we put towards an existing lead, we are generating $50 of top line revenue.”
Here is a list of metrics and indicators from one of Carroll’s blog posts:
These are real-world metrics that every marketer should track in their lead generation program:
- Number of inquiries? (people who raised their hands)
- Number of leads? (qualified as “sales-ready”)
- Number of opportunities? (leads that move to pipeline)
- Number of closed sales? (generated from marketing leads)
If marketers know those metrics they can start to track the following key performance indicators:
- Inquiry to lead ratio (cost-per-lead)
- Lead to opportunity ratio (cost-per-opportunity)
- Lead to pipeline revenue ratio (cost-per-pipeline revenue)
- Lead to sale (win) ratio (cost-per-closed sale)
A value-driven mindset requires leaders and marketers to plan and budget for the long term and to take a more holistic view that goes beyond cost-per-lead budgets.
Using ROI to measure lead nurturing success
Carroll began this conversation by describing lead nurturing investment. He gives an example that if you plan on spending $100,000 on a new lead program, $25,000 of that investment should be allocated to lead nurturing. Lead nurturing should command about 25 percent of a lead campaign’s budget.
When looking at ROI goals for lead nurturing, he believes you first look at the objective of the lead generation program — ten times, 20 times return or whatever goal you set — and use that goal as a starting point for the lead nurturing goal.
He adds what companies generate from a lead nurturing program is going to be affected by a number of factors:
- The product sold
- The brand
- The value proposition
- The offer
- The ability of Sales to convert leads into revenue
It’s also important to remember nurturing programs take longer to provide a return because a typical lead nurturing program involves multiple touches over a period of time, but marketers can point to building momentum toward final conversion as a positive result of nurturing.
Carroll says, “I documented a case study of someone seeing a four million dollar lead nurturing pipeline impact in year one, and that same company, the following year, with the same budget from that same lead nurturing program saw a fourteen million dollar pipeline impact because returns on nurturing over time grew to be exponential.”
A lead nurturing analogy
To complete all this talk about lead nurturing, here’s an analogy from Carroll:
I worked on a farm growing up and the farmer said, “You don’t pick your corn to check if it is growing. You have to nurture it. It needs sun, it needs water, it needs good soil to provide a yield.” And the same is true in these relationships that we are building as well.