How to Calculate Lead Value
How much is a lead REALLY worth to your business? This is something that you can easily calculate. First, make sure you have all of your marketing and sales information at hand. Generally, you will want to use the information from the previous year. For seasonal businesses, it is also a good idea to assess your cost per lead and lead value quarterly. So get ready for your fully packed 7.8 minutes of reading, and GO!
1. Calculate Cost Per Lead
Total cost to acquire leads (how much you spent on marketing in a given time period) / total leads acquired = Actual cost per lead
If you spent $1000 on marketing and had 8 leads, this is what it would look like:
Your cost per lead in this situation is $125.
2. Calculate Lead Value
Total sales value/total leads = lead value
If you made $12,000 during this period and your lead volume was 8, this is how you would calculate lead value: $12,000/8= each lead is worth $1500
In this situation, you spent $125 acquiring each lead but made $1500 per lead. You always want your cost per lead lower than your lead value (otherwise you are losing money).
3. Calculate Lead to Sale Conversion Rate
Converted Leads/Total Lead Volume = Conversion Rate
If you had 10 people ask for estimates but only 4 of them converted to actual sales, 4/10=0.4 or a 40% conversion rate.
4. Projecting Future Leads and Marketing Budget to Attain Sales Goals
If you have established a specific sales goal, you can use your current information to know how many leads you will need in order to achieve that goal.
Sales goal/lead value = Amount of leads you need to reach your sales goal at the current conversion rate
Pretend that your goal is to increase your total sales to $15,000. To calculate the number of leads you need (assuming the same lead to sales conversion rate as the previous period), you would do the following:
$15,000/$1500 (your lead value) = 10 leads
To calculate a rough marketing spend, you would want to take your goal number of leads and multiply it by your cost per lead. In this situation that would be 10 leads x $125 = $1250.
It’s not a perfect system – all of these things can cause fluctuations when you project future lead goals:
- Costs you can’t control.
- Market interruptions.
- Different conversion rates.
Now that you have discovered your metrics, it’s time to start structuring your business marketing strategy. For help developing your strategy contact us to set up a free consultation today!