How much is a lead worth to your business?

March 10, 2021

Consumer activity and eCommerce have both changed significantly. We’ve seen a huge spike in online activity as companies expand their eCommerce initiatives to match new patterns of behaviour. This year, retaining customers, driving repeat business and converting leads into sales will be vital for success.

Calculating the number of leads you’re generating is the first step, but you also need to know how many you’re converting and the journey these leads took. When you’re armed with this information you will know which parts of your sales process are working as intended, which marketing activities are giving you the best returns, and where you can fill the gaps. This can be made easier by implementing a customer lifetime value strategy.

Creating a CLV strategy

Customer Lifetime Value (CLV) is the total worth to a brand of a customer over the whole period of their relationship. Knowing CLV helps develop strategies to acquire new customers and retain existing ones while maintaining profit margins. We also want to mention Customer Lifetime Profit (CLP) here. Both of these values can be used depending on which you prefer and the information you have to hand.

So, campaigns, ads and keywords are measured by their CLV performance using a data-driven conversion attribution model, and the brand can optimise activity accordingly. If you want to optimise your budget, this is the way to go. You should record your website visitor numbers and track the leads that are coming from them. What you want to know for your website conversions is how many visitors you need to achieve your sales target and what you’re spending to get them.

If you’re spending more than you’re getting back then the balance is off – and you need to make some changes to what you’re forking out for activities. Investigate what activity is most cost-effective and generates the most leads that turn into converted sales. Are there any sources that result in higher rates of conversion, and can you amp those up?

What we recommend

Typically, search is the best means of conversion because the people are already in the sales funnel looking for your products or services. Organic search has always been stronger than paid, and in fact, 53% of website traffic comes from organic search alone. That being said, if you have little to no SEO for organic search traffic, a paid ad strategy can fill this gap. Having a search strategy (whether organic or paid) is the foundation every business website should have if the company wants to generate leads and sales online.

There’s a general formula you can use to determine how much a lead is worth. It looks something like this:

Sales or total revenue ÷Total customers = Customer Lifetime Value
Total profit ÷ Total customers = Customer Lifetime Profit

Both of these are generally best to work out CLV or CLP for your most recent year of business.

If you want to work out your lead conversion rate you can apply this:

Lead conversion rate = Number of converted leads or sales / total number of leads
For instance: 100 leads ÷ 10 sales = 10 (or 10%)

With these two calculations you can then do the following:

CLV OR CLP = £10000 X 10% conversion rate = £1000 Target Cost Per Lead,

Anything better/lower than this provides a positive ROI for your business.

How to execute this strategy with Google Ads

If you’re looking to execute a strategy like this with Google Ads, here are three levels of bidding strategies to consider. They can simply be used as a way of maximising conversions, assuming people have conversion tracking set up. Alternatively, you can automate it even more with Target CPA (Cost per acquisition) and Target ROAS (Return on ads spend). Conversion tracking is essential for all three of these and should be set up anyway, even if you are only doing SEO and Google Analytics.

This is how each of them works:

  • Maximise conversionsautomatically sets bids to help get the most conversions for your campaign while spending your budget. It uses advanced machine learning to automatically optimise bids and offers auction-time bidding capabilities that tailor bids for each and every auction.
  • Target CPA – is a Google Ads Smart Bidding strategy that sets bids to help get as many conversions as possible at or below the target cost per action (CPA) that you set. It uses advanced machine learning to automatically optimise bids and offers auction-time bidding capabilities that tailor bids for each and every auction similar to maximise conversion.
  • Target ROAS – lets you bid based on a target return on ad spend (ROAS). This Google Ads Smart Bidding strategy helps you get more conversion value or revenue at the target return-on-ad-spend (ROAS) you set. Your bids are automatically optimised at auction time, allowing you to tailor bids for each auction similar to both Maximise conversions and Target CPA.

TOP TIP: When creating a new Google Ads campaign, it’s recommended to start your campaign on Maximise conversions even if you plan to move to Target CPA for the first two weeks or so whilst it is in it’s “learning” phase. (Information correct at time of writing)

How to designate your budget

Budgets can be tricky, with lots of things to consider. If you have an eCommerce based business and website, as long as you are operating at a positive return on investment (ROI) your budget might be unlimited. But if you are a service-based business you may only have the capacity for 1 or 2 more clients a month so targets and budgets should be set around that.

Let’s say your target is 2 new clients a month and your average customer profit is £5,000, you can theoretically spend £10,000 a month and still break even (not taking running costs, staff time and additional work related to enquiries into account) but this is a start. Now let’s say you set a target of 200% or a budget of £5,000 to get those two new clients this gives you something to work towards.

If in your first month, you do not hit these targets, don’t be alarmed. The nature of SEO and Google Ads is that they tend to get better over time, not to mention seasonal and monthly trends that can affect business, search traffic and search intent. Even though Google Ads can be a short term fix for traffic and leads, the quality of their performance should be judged in the long term, month on month, year on year. Give it a go and see how well it works for you.

If you want to know about how we help your business with lead generation, contact us today.

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