Leads have value. This value can be calculated by the hard and soft costs required to generate the lead. Indeed, most good organizations know exactly how much each warm lead costs. But the lead value is only relevant when looked at in the context of the client acquisition process.
There are three steps in acquiring a new client: Lead generation, lead qualification and lead conversion. Sometimes steps one and two can be accomplished in concert, creating a qualified lead.
A cold lead is essentially a name that you did not have before, that needs to be marketed to directly or indirectly. Cold leads have a cost, the cost of the list generation. It can range from purchased list to networking activities or even referrals. This cost can vary by how closely the lead is qualified, ie. it fits the demographic and psychographic profile of your ideal client. For example highly targeted subscription lists are more expensive than general lists.
A warm lead is one that has been qualified, to be in the right demographic and psychographic for your product and service, and they have been marketed to in order to elicit receptiveness or even an indication of interest for your product or service. The cost of the lead is the cost of the list generation, the qualification, and the marketing required to “warm” the lead. Referrals can fall into this category because of the implied approvals (warming) that come with referrals. The costs can be identified in time, direct costs, and indirect costs associate with acquiring the name. Leads can fall into the category of “false leads”, when they are not qualified and the costs of qualification of the lead or lead list outweigh the potential benefit (i.e. the probability of conversion is too small). Effective organizations qualify leads before committing any additional expense in marketing or sales toward “false leads”.
The lead will then need to be converted, either through marketing (no person involved) or sales (a person involved). This conversion process can be mapped out and costed. Sometimes all three steps can be accomplished as a function of marketing and in one process. But the costs of the steps can be broken down nonetheless.
The value of a lead can only be assessed properly when evaluated against conversion ratio (the percentage of warm leads actually converted to a client) and the average lifetime customer value of the organization’s client, which includes retention (how long to they stay a client), future purchases and referrals as well as testimonial (marketing) value.
If lifetime customer value (LCV) of a client is for example $50,000, the lead conversion ratio is 10%, i.e. 1:10, and “warm” leads cost $100 each, and the cost of conversion (sales or marketing) is $2000, then the organization’s cost of a client acquisition is $3000. The relative worth of the lead generation costs and the lead qualification and conversion costs can be evaluated against the net profit of the LCV, including allocated overhead for the client’s maintenance. To be more exact the LCV can be figured as a Net Present Value against cost of acquisition.