Measuring the success of a lead generation campaign on the number of leads is a colossal mistake. The quantity of leads falls under what can be considered a vanity metric, along with the number of traffic sessions, etc.
The most reasonable way to measure the performance of a lead generation campaign is by measuring the lead quality and its return on investment.
How do you judge the success of a lead generation campaign? Is the deciding metric the number of leads or the quality?
This article will make a case against using lead quantity as a key performance indicator and explain why you should use lead quality and return on investment as your success metric.
The Case Against Measuring Lead Quantity
Everyone in marketing wants their campaign to go viral. The more people see your campaign, the odds of you finding your potential customer increase.
The more customers you have, the more revenue gets attributed to your efforts.
From the vantage point of a sales manager, it is vital to have leads in the pipeline for their sales team to call.
They will always put pressure on marketing to generate more leads.
But when you increase the number of leads and the quality of leads begin to drop, they will also complain.
When acquiring a great number of leads, you bring in a large percentage of garbage leads.
The sales team will waste their time if they reach out to these garbage leads.
Let’s analyze this scenario.
A company asks two agencies to run a lead generation campaign to generate direct sales for a piece of software. One unit of software costs $1,000.
Agency A runs a lead-generation campaign with signs up to their software webinar being the lead magnet but uses lead quantity as their key performance metric.
Agency B runs the same lead-generation campaign but uses conversion data (lead quality) to measure campaign success.
Agency A generates 50,000 leads at $2.50 per lead and sells 100 units of software.
Agency B generated 1,000 leads at $15 per lead and sells 20 units of software.
Agency A costs the client $125,000 in ad spend to generate $100,000 in revenue. They lost the company $25,000, but tell them it was a successful campaign because they generated so many leads.
Agency B cost the client $15,000 in ad spend and generated $20,000 in revenue. This yielded a $5,000 profit for the company at a smaller scale.
In this example, I would prefer to work with an agency that promises results even though the cost per lead is higher.
Not work with the agency that measures campaign success off a vanity metric.
Lead Quality Is a Solid Metric
As already alluded, measuring lead generation campaign success on quality works better than using lead quantity.
You can define a quality lead as a lead that interacts with your brand on a path to converting to your product or service.
Ways to Measure Lead Quality?
Lead quality can be measured in two ways:
1. through sale conversion data
2. through user behavior.
Generally, both metrics can be tallied through your e-commerce platform or your CRM data.
Sale Conversion Data
Conversion data is the best way to measure lead quality.
These are people that have purchased your product or service.
When analyzing lead generation through conversion data, you are looking at where the lead that converted came from and attributing it to your lead generation campaign.
Most CRM, E-commerce tools, and even Google Analytics can accomplish this easily.
CRMs are effective tools that can help measure the quality of a lead.
User Behavior
Measuring lead quality through user behavior is not a preferred option compared to sale conversion data, but it can still be effective in some cases.
This data will most likely come from your CRM. You should be able to tell which leads out of the ones generated have been visiting your website or engaging with your emails.
The user behavior will separate leads worth continuing to nurture versus ones that only became a lead because they wanted the lead magnet with no intention of future interaction with your brand.
Return on Investment is The Best Metric to Measure Success for Lead Generation Campaign
Using return on investment is a surefire way to understand how your lead generation program is performing.
Return on investment is a ratio comparing how much money you spend on a lead generation campaign against how much revenue you receive from your efforts.
ROI= Cost of Investment/ Current Value of Investment−Cost of Investment
If you use this equation to measure your results, you want your ratio greater than 0.
A zero return on investment means that you broke even on that campaign. Anything less than zero means you lost money.
You Need to Treat Lead Generation as an Investment, That’s Why Return on Investment is a Fruitful Metric to Track
Lead Generation is truly an investment.
If you throw an advertising budget into lead generation and expect to double or triple your investment on the first try, you will most likely crash and burn.
Be prepared to lose money before you make money with lead generation.
Measuring your return on investment is probably the best way to analyze your lead generation campaigns.
The great thing about return on investment is that it is a metric that changes over time.
As soon as you acquire a single lead, the ROI of the campaign is affected.
If the lead is deemed very high quality, it may purchase multiple times throughout its lifetime.
If that customer purchases a product 15 years in the future, the return on investment of the initial lead generation campaign is still affected.
When measuring the sheer quantity of lead generation, you lose that nugget of information.
The CRM your business is working with should have a pipeline of all the interactions that customer makes through their customer journey. You can begin to pick up trends.
Yes, it is so attractive to say that you have a sales pipeline or a marketing funnel of 100,000 people that completed your lead generation form, but if they don’t attribute to revenue at some point in time, you are wasting your time and effort.
Time is still needed to let your leads bake and optimize your user experiences to generate better quality leads.
For example, it’s not the end of the world if you generate those 100,000 leads and don’t generate any revenue from them.
At least you have a captive audience.
Your next goal should be to make those leads become more familiar with your brand by utilizing effective email messaging.
You will most likely begin to see your return on investment increase once you nurture those leads.
Measuring Lead Generation Success as Time Goes On
Customer Lifetime Value, like return on Investment, is a powerful metric to follow when analyzing your lead generation program.
Customer Lifetime Value is the revenue a single lead generates through their entire customer journey with your business.
You can calculate customer lifetime value by using the formula below:
Customer Lifetime Value = Customer Value x Average Customer Lifespan
Customer Life Value Application for Lead Generation
View the example below to understand measuring the customer lifetime value of a lead generation campaign.
Let’s say you ran a lead generation campaign A. On average, folks that participated in that campaign generated about $750 of revenue for your business. Across the company, the customer generally purchases products for about 5 years.
The calculation for customer lifetime value would be as follows:
Customer Lifetime Value (for lead generation campaign A) = $750 x 5 years
Customer Lifetime Value = $3750
Other Ways To Measure Lead Generation
Another way to effectively track the performance of a lead generation campaign is by monitoring the cost per lead acquisition.
Cost per Lead Acquisition
Cost per lead acquisition can function like an early warning detection system when running your lead generation campaigns.
It simply measures how much you are spending to generate a single lead.
You can calculate cost per lead acquisition by dividing the amount you spent acquiring the leads and dividing it by the number of leads you generated.
Cost per Acquisition = Total Advertising Costs/Total Leads Generated
This metric only comes into play if the revenue generated from a single unit of your product can be surpassed by the lead acquisition cost of one lead.
For example, if you are a financial education company selling a $1500 course, you most likely won’t have any issues with cost per lead acquisition.
However, if you are a candy store company selling candy for a couple of cents, your unit economics might be working against you when paying to drive leads into your business.
You can monitor the cost per lead acquisition daily or on a weekly basis while the campaign is running. That way, if you know that your cost per lead is costing you more than the revenue generated from a single product unit, you can pause right away and make adjustments.
Conclusion
The method you measure success depends on the goal of the approach you have in place for your lead generation campaign.
Every sales team wants a quality lead to work with.
However, in determining lead generation campaign success, your best bet is to measure through lead quality instead of quantity.
The best way to measure the impact of a lead generation campaign is by analyzing the return on investment or customer lifetime value.
