Calculating The Economics and ROI of Lead Generation

ROI Lead Generation

Marketing organizations used to be able to get away with just creating well-designed content and slick campaigns. That’s no longer the case.

Today, marketers are being held to a higher standard. The content and campaigns they produce are now expected to produce results and they’re accountable to performance metrics that measure audience, traffic, and conversions. Common KPIs include website sessions and lead conversions, but increasingly the ultimate KPI is top-line revenue.

Not only is marketing expected to generate leads, but those leads are also expected to convert into closed sales. Next quarter’s marketing budget is often guided by the return realized from previous marketing investments. Consequently, marketers are becoming laser-focused on the ROI of their lead generation strategies and tactics.

Common challenges for measuring the ROI of Lead Generation

The basic formula to calculate lead generation ROI is simple.

Revenue Generated From Leads – Cost of Lead Generation Program = Return on Investment

While the formula is simple, getting an accurate number isn’t always straightforward. Many organizations lack the reporting functionality and/or discipline to accurately measure the ROI of their lead generation activities. Below are the most common challenges.

1. Lead Attribution

This is the process of determining which marketing activity, tactic, or campaign actually produced the sales opportunity.

Many organizations struggle tracking lead attribution of the opportunities in their pipeline and closed sales. It can be especially challenging for companies with long sales cycles and short memories. In reality, it’s probably rare that an opportunity is generated by just one marketing activity.

For example, a prospect may be consuming your blog posts for months before they click on a call-to-action (CTA) to schedule an appointment with a salesperson. Was it the first article they read that produced the lead or was it the last that spurred their action?

There will always be a “gray area” in making the determination, so it’s important to establish guidelines for your organization and then follow them consistently.

Further, it’s important to use a CRM tool that allows you to track the marketing activity and prospect behavior to the very top of the funnel. Your CRM should allow you to “close the loop”. Without a CRM, it will be nearly impossible to not only accurately track lead attribution, but also assign revenue to the appropriate lead.

2. Move Beyond Anecdotal Evidence

Stop making marketing strategy decisions based on activity.

Generating a lot of leads for the sales team may give everyone “warm fuzzies”, but activity doesn’t always equal success. What’s more successful a marketing campaign that produces 100 leads, but none of them close, or a campaign that produces 10 leads and 2 close?

The only way the success of a marketing campaign can be determined is if the sales team diligently tracks forecasted deals, closes, and revenue realized. While this can be accomplished with spreadsheets, doing so will become cumbersome and unwieldy over time.

Ideally, this type of tracking should be done in the CRM. However, it’s critical that the CRM used by the sales team and kept up to date. Otherwise, it’s garbage in/garbage out, and arriving at an accurate marketing ROI will be impossible.

3. Include All the Revenue in the ROI Equation

When the deal is moved to “closed/won” in CRM the total value of the contract should be entered into CRM.

This number, though, may not remain static. You may need to adjust the revenue value and the corresponding ROI calculation as additional products or services are added on. In addition, if this client renews their contract for future years, the value of the additional revenue should be included in the ROI calculation. The monthly recurring revenue from a client that is retained for several years can transform a ho-hum ROI into one that’s much more appealing to your CFO.

4. Include All Associated Costs

When calculating the overall ROI of your marketing investment make sure you include all the relevant costs. Don’t forget to include the investments made in marketing activities that didn’t produce any leads and the costs associated with your internal team. It’s easy to account for the costs associated with third-party agencies. You simply track their monthly invoice.

But what about the cost of your internal marketing resources? Their time, salaries, benefits, etc. should be included in the cost variable of the ROI equation as well.

Also, I’ve spoken with some business leaders who proudly proclaim that they grow their revenue without any investment in lead generation marketing. Instead, they say their salespeople generate their own leads. If these companies actually tracked the time and costs associated with their sales team’s prospecting activities, they may realize that the investment they’re making in lead generation far exceeds that of their competitors who have sophisticated marketing departments. The hourly rate of their sales talent and the time they dedicate to prospecting isn’t insignificant.