Measuring ROI on Lead Generation

The marketing world is ever-evolving: a fact that many business leaders realize. Technology is making it easier to measure results, so data is quickly becoming king. Most marketers are now being asked to prove how their company’s marketing dollars are paying off. Analyzing the Return on Investment (ROI) of your lead generation strategy is a must, but unfortunately, most marketing professionals aren’t quite sure how to accomplish this task.

90% of Marketers Do Not Understand How to Calculate ROI

This is a startling statistic. So, where do you start? Return on investment is particularly difficult to quantify when it comes to marketing efforts. To truly understand how your marketing dollars impact your organization’s bottom line, you may need to employ more than one strategy.

Lead Generation has Changed Traditional Marketing

Lead generation is a goal for most B2B marketers, especially those in the scientific field. In fact, 83% of marketers say that lead generation is a goal of their marketing strategy. In days gone by, cold-calling, static websites, and some paid advertising here and there might produce results. Today’s buyers are media-savvy and expect a more interactive approach.

Digital Marketing is Easy to Measure

The most commonly used B2B lead generation methods are SEO, email marketing, event marketing and content marketing.

Because the results of digital marketing can usually be measured in real time, you have the chance to quickly adapt and therefore increase your results. Running simple reports will tell you how many people are reading your emails and checking out your website and who is being converted to a lead.

Key Marketing Metrics

Measure the Effectiveness of Individual Channels

When you understand which are your key lead generating activities, it’s much easier to demonstrate ROI.

By comparing how your content marketing, PPC, SEO, email marketing, and social media affects your ability to attract new customers, you can better determine which activities warrant the most resources, but how can you gauge this?

Cost per Lead v Cost per Acquisition

Two key Marketing ROI Indicators are CPL and CPA. Before you calculate either of these two metrics, you have to calculate your Marketing expense. This can include all of your expenses including personnel, events and paid channels, however it is safe to assume that ALL of your Marketing team doesn't spend ALL of their time running Adwords campaigns, so you can either:

  • Apportion time spent on certain activities (i.e. Adwords campaigns)
  • Look at just the cost of the activity

In the below example we take a look at just the cost of running an activity (i.e. money spent on Adwords).

Would you spend $600 to make $12,000?

Cost per Lead for Adwords can be calculated by taking a budget of $3,000/month and dividing by the 500 clicks (not leads) that it generated to give a $6 Cost per click for Adwords campaigns. Say 10% of these 500 unknown clicks convert to leads by filling in your form, you now have 50 leads at Cost per Lead of $3,000/50 = $60 CPL

This is great if your objective is to get loads of leads, but leads don't pay the wages, paying customers do! It's no use having 500 leads if they are all low quality and none convert.

This is where the Cost per Acquisition comes in; let's take the same $3,000/month and say we convert those 50 leads to sales at a rate of 10%. Now we are looking at 5 paying customers from just $3,000 each month - That's a $600 CPA.

$600 CPA may seem like a large number, but it comes with context: If you are selling consumables, then you might want to reassess your strategy... unless your consumables are bought in bulk. However, if you are selling high value products and services, the return can be easily justifiable.

Furthermore, Lifetime Customer Value (LCV) and Average Value Order (AVO) are two other metrics worth taking note of: Average Value Order can be taken as the total annual revenue, divided by the total number of clients. The LCV will vary depending on industry, products, services, repeat purchases, additional support etc.

Using our example of $600 CPA, if we have $10,000 AVO with additional revenues of $2,000 from support and add ons, we have an LCV of $12,000.

Now, that's a pretty quick and dirty way of calculating these metrics, you can start to attribute Marketing hours and Sales hours into the expense side of things, but as long as you are consistent across channels, it should give you a pretty good sighting to compare the ROI on Marketing activities.

Big Data Is Changing the Way That Marketers Think

Marketing departments may not always produce tonnes of leads - Quality lead generation is hard. This leaves sales departments struggling to fill in the blanks. Predictive analytics is helping to bridge the gap. By analyzing data from a variety of sources, from purchase history to social media participation, marketers are beginning to identify which leads hold the greatest potential.

Even though 82% of marketers are expected to prove ROI on each of their campaigns, fewer than a third can effectively measure the return for each marketing channel.

Predictive analytics can be used to review historical data, identify trends, and develop an effective lead generation strategy. Marketing analytics are not necessarily the same as web analytics, which is an important point to consider. While it’s useful to know how many individuals are visiting your website and how much time they spend there, visits do not always translate to leads.

Marketing analytics help measure valuable data such as lead conversion, sales and which specific events contribute to the conversion of leads. This includes data that comes not only from your website, but also from your social media profiles, email, and even offline sources.

The Importance of Lead Source

Once you know a little more about what mediums end up producing leads, it’s time to start figuring out how and why this happened. All of this data can now be organized so that you can develop a plan of action to improve the customer experience.

A customer journey map illustrates each of the touchpoints that contribute to a sale. When you comprehend just what it takes to generate and convert a lead and determine exactly where each lead is coming from, you can eliminate any roadblocks that may be standing in the way of your marketing efforts.

Take for instance an unknown visitor who originally saw a banner ad or found you organically in the SERPs. They may then qualify themselves as a lead by filling out a form or subscribing to the blog. It may take weeks, months or even years before they become a customer; the original lead source in the customer journey would be the banner or the organic search result, but the other touchpoints along the way are still very important to build your online presence.

Using Data Effectively

This information is one of the best ways to demonstrate the ROI of each of your chosen marketing platforms. Leads obtained through digital marketing efforts are fairly easy to track. By using cookies stored in your website visitors’ data, you have the ability to figure out where many of your leads are coming from. Once you have access to this information, it can be stored in your CRM. By utilizing reporting features, you can then analyze trends and use these insights to prove ROI and to help you make informed decisions in the future.

Don’t be discouraged if you’re a little overwhelmed by this process. You’re hardly alone. The process of determining ROI is very tricky if you don’t have a very effective analytical tool at your disposal. Fortunately, with the help of the right technology, you can gain access to data quickly and use it to respond and nurture leads while accurately measuring the results.

Using ROI to Inform Stratetgy

Once you know where your resources have gone and how it’s helped you to generate leads, what’s the next step? All of these marketing metrics can now be used to help your company build an even more effective marketing strategy.

One particular example was with a client that was spending $3,000 on adwords and $3,000 on SEO per month. The adwords was working well for generating leads which were converting at a CPA of $600. However, even though the SEO campaign was generating fewer leads, those leads were of a much higher quality and beacuse they had a higher lead-to customer conversion rate, the CPA was around $100.

With a $300 CPA, leads generated from the organic SEO campaign were not only twice as effective at converting to customers, we could also trace a higher Average Value Order via this Marketing channel.

Multiple studies have indicated that segmenting your consumers and targeting your marketing efforts is an effective way to generate leads. This strategy is so widely accepted that it’s truly become a marketing best practice. The data you evaluate when determining your ROI will help you to better segment your audience and focus on efforts that will attract your target markets.

Not All Marketers Are Keeping Up

68% of B2B companies are struggling with their lead generation.

Nowadays, buyers are well-informed. Purchases are made based on reviews, blogs and social media feedback. Marketers have access to this information, but most aren’t quite sure how to use it.

There are some significant benefits to utilizing modern marketing techniques to produce leads. Because marketing is going digital, it generally costs less. This doesn’t mean that you won’t have to throw some resources toward your marketing efforts. Modern marketing is leveling the playing field, however, and allowing new and smaller businesses to get in the game and get some attention.

Invest in Efforts That Yield Returns

Armed with a wealth of data, you can now get down to business and stop throwing money into efforts that aren’t producing leads and divert resources into those that are. Understanding your lead generating ROI is about more than producing a magic number for stakeholders. A comprehensive analytical platform will help you understand your customers' behaviour and is your key to bringing in quality leads that convert into revenue paying customers.

Posted by Frank Barker

Having spent his younger years playing Rugby in the sunny climes of Spain and Western Australia, Frank graduated from Loughborough University with a BSc in International Business. Over the past 4 years, he has since forged a career in Digital Marketing and developed a passion for combining big data with great content to deliver messages that resonate with specific audiences. A sportsman at heart, Frank still enjoys lacing up the boots for his beloved Macclesfield 1st XV Rugby or pulling on the whites to represent the more serious Macclesfield 3rd XI Cricket team.

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