Sunday, August 26, 2012

Why You Shouldn't Rely on Cost-Per-Lead

About once a month, I'm publishing a post that shares insights I've discovered at another blog. This month, the insight comes from ViewPoint l The Truth About Lead Generation. The primary author of this blog is Dan McDade whose firm (PointClear) provides lead generation services to B2B companies.

Earlier this year, McCade wrote a series of three posts discussing The Cost-Per-Lead Fallacy in Measuring B2B Lead Generation Investments. Here are the links to the three posts:
All of these posts contain excellent information, and I highly recommend them. Here are a few highlights.

McDade argues that it's a big mistake to use cost-per-lead as the primary basis for managing and measuring B2B lead generation investments. As he puts it, "This metric rewards the wrong behavior, delivers low-value sales leads, and fails to deliver the kind of business intelligence needed to drive marketing ROI now and in the future."

McDade goes on to identify several specific shortcomings of cost-per-lead as the primary lead generation metric.
  • Emphasizing cost-per-lead encourages marketing to deliver high volumes of low quality sales leads.
  • Cost-per-lead focuses on costs rather than on the value or ROI produced by marketing efforts.
  • In most companies, cost-per-lead is used primarily to measure the cost of early-stage leads. Rarely is cost-per-lead used for late-stage leads such as "sales accepted" leads or "sales qualified" leads. When cost-per-lead is used only for early-stage leads, it is not an effective way to measure outcomes.
I completely agree with most of Dan McDade's criticisms of cost-per-lead, and I would add one of my own. There is nothing inherently wrong with measuring cost-per-lead, but problems will arise if cost-per-lead is misused or used in isolation.

In my last two posts (here and here), I discussed how to calculate the value of leads at every stage of the demand generation process. If you know the value of your leads at multiple stages, then measuring the cost of leads at those same stages can provide useful information about the performance of your lead generation activities and programs. If you don't know the value of your leads, measuring the cost of your leads is mostly a waste of time. The information you generate won't enable you to make better decisions, and it may lead you to make choices that will do more harm than good.

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