Lately, I have been happily attracting leads for my Internet
marketing products and services from a wide range of sources including search
engine advertising, online classified ads and even an eBay campaign. But
am I spending too much? What is a lead worth anyway?
I figured I had better find out! Otherwise I could be
spending more money than a lead is actually worth to me.
Here is the process I went through to determine how much I
should pay for a lead..
1. Defining what a lead is for you.
There are different definitions of leads in different
industries. For myself, I defined a lead as someone who actually
visited my web site and signed up for either a free e-book or my newsletter.
This way, I know they are interested in the kind of help I offer. They
have seen MY web site and they have freely given me their e-mail address to stay
in touch.
If you are buying lead lists from someone, the value is much
less because the people haven't heard of you, they have just opted in to someone
else's list.
2. Tracking your leads.
It is critical that you are tracking your
advertising to see how much of it is resulting in leads and sales. I
dump 95% of all Internet advertising I try after the first month because my
tracking tells me it doesn't work!
Without the ad tracking, I would never know which campaigns were
working and I would be wasting 95% of my marketing dollars.
The
ad tracking service I use is called
1ShoppingCart. They offer unlimited ad tracking and auto responders.
3. How many leads does it take to generate a customer?
Not everyone who signs up for a free e-book or a newsletter
becomes a customer. If only 1 in 100 of your signups become customers, you
need to take this into account when you are valuing your lead. In my case,
I feel 1 in 25 signups become a customer at some level.
4. What is each customer worth?
How much does your average customer spend with you? At
first, I found this difficult to calculate because my customers range from a $9
e-book to $1,000s of dollars each year in coaching. In addition, I receive
passive and residual income from my customers which comes from their use of
products and services I recommend. But then I looked at my accounting
program and simply took my total income for the year and divided it by the
number of clients. This showed me that my average client spent $259 in
2004.
5. Calculating the value of your leads.
Here is the formula to calculate the value of your leads:
Value per lead = value per customer ? number of leads
needed to generate 1 customer.
In my case, my accounting program for 2004 showed an average
expenditure per customer of $259. In my own case, I believe that 1 out of
every 25 signups will result in a sale.
Value per lead = $259 ? $25 = $10.36
In my case, each lead I generate should bring me $10.36 in
sales.
5. What about profitability?
If I spend $10 to generate $10 in sales, I don't make any profit
and I haven't covered my costs of operating.
If I assume that I currently make $5 profit on a $10 sale, I
might want to set a target of paying a maximum per lead of $2. This way,
on a $10 sale, my total cost including the cost of the lead plus the cost of the
product is $7, leaving me a $3 profit.
In my case, my actual costs in 2004 were only 37% of my sales,
so I could afford to pay even more, but the $2 target seems a good one for me to
work with. Fortunately, it is easy for me to generate all the leads I need
for less than $2 each through the various types of advertising available.
Garland
Coulson, ?The E-Business Tutor? is an acclaimed speaker, author and coach in the
field of Internet marketing for small business and home business. For more
information, visit The E-Business Tutor web site at
www.ebusinesstutor.com or call toll-free in North America at 1-866-413-0951.
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Last Updated Saturday, April 30 2005 @ 01:59 PM CDT 
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