Calculating Your Web Lead Value and ROI

How Much is a Web Lead Worth and Why Should You Care

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Knowing how much a lead is worth to your company may not sound like something you should consider from an Internet marketing point of view, but it definitely is. Here’s why:

It determines how much you’re willing to spend per click on paid search.
It informs your decisions about budgeting for other marketing initiatives.
It clears the water amazingly well when you try to analyze ROI for measurable marketing efforts.

Aside from that, it just seems like a good thing to know. However, arriving at a number is sometimes hard. I’ll do my best to simplify it for you.

Lead value = lead quantity x conversion rate / revenue.

Say for instance that you have $10,000 in revenue. You know that you had 500 leads, and your sales team estimates a 2% conversion rate from lead to actual paying customer.

2% of 500 is 10. So you have 10 customers per 500 leads. Each converted lead is worth $1,000.

Obviously you may have to run these numbers against revenue from products with different price points etc, but the general formula is universal. We’ll take lifetime value of a customer into consideration in another blog post.

Great. Now you know your cost per lead. Time to apply that knowledge to something useful. How about your paid search budget?

If you’re in a competitive industry such as auto sales, real estate, pharmaceutical and the like, you’re probably going to suffer extreme sticker shock when you see the cost per click for competitive keywords.

“Pittsburgh Real Estate Agent” for instance can run up to $20 a click. That is a lot of money. However, consider that your fees as a real estate agent can be well worth it – but up to what point? How much should you spend on paid search when your value per lead is $1,000?

To do this calculation, you need three pieces of information from AdWords: how much a keyword costs per click, how many clicks it receives and what percentage of those clicks convert to leads. I’ll use reasonable numbers here for the sake of argument.

Say that the keyword Pittsburgh Real Estate Agent costs $10 per click. You receive 100 clicks. That’s $1,000 – which is a pretty intimidating number. Let’s say that 5% of those clicks turn into leads on your site. That’s 2 leads. Now you’ve already decided that a lead is worth $1,000 after figuring out how much revenue you pull from the ones that become customers. So you have spent $1,000 and have a lead value of $2,000. That’s 100% return on your investment. Pretty awesome!

Another thing to factor into consideration is that leads from different sources convert at different rates. A lead from a referral from another website might convert to a sale 3% more frequently than a lead from paid search.

This is why tracking your website is so important. You need to be able to accurately attribute revenue to lead source.

Once you have all the pieces in place, deciding on ad budget or budget for any other marketing initiative is easy!

Hope this was helpful! Feel free to contact us with any questions.