How To Calculate The Value of Your Leads
Calculating the value of your leads is on the of the most critical aspect of digital marketing, especially for service-based businesses or any business that receives a majority of its leads from phone calls or form submissions. Without assigning a monetary value to your leads, you cannot truly understand ROI / ROAS. Sadly, a majority of business owners and even experienced marketing managers do not calculate and assign values to their leads. The reason for this frequent marketing shortfall is due to the challenge of pinning down a few key metrics to calculate the value of a lead. In addition, varying service values, varying conversion rates and merged lead capture sources can further complicate properly making a value calculation for leads. Its imperative to work through the challenges and calculate and assign lead values, especially if you spend any money on marketing.
How to Calculate Lead Value
Example Data: Accounting & Bookkeeping Firm. Their average customer pays them $500 / mo. Their average customers stays with them for 3.5 years. They convert 10% of leads driven by digital advertising. They spend 9% of gross revenue on marketing & lead generation.
Lead Value Calculator Breakdown
Average Value of a Single Customer Transaction – This the average revenue your receive from a single transaction.
Average Number of Transactions Over The Life of Your Average Customer – This is the average number of transactions you receive over the entire length a customer works with you. This calculation can reach for years. If you are a startup or new business this can be a projection based on assumptions of how long you will retain customers.
Average Lifetime Value of a Customer – This is the average value of a single customer transaction multiplied by the average number of transactions over the life of your average customer.
Average Conversion Rate of a Lead – This is the average conversion rate of your leads.
Average Value of Lead – This is the average lifetime value of a customer multiplied by the average conversion rate of a lead.
Percentage of Gross Revenue Spent on Marketing – This is the average lifetime value of a customer multiplied by the average conversion rate of a lead.
Target Cost Per Lead – This is the average value of a lead multiplied by the percentage of gross revenue spent on marketing.