Most partner programs promise Marketing Development Funds to help partners generate customer leads. And some vendors commit to providing qualified customer leads directly to partners from vendor-run campaigns. But what does it cost to generate a customer lead? How many customer leads should Marketing Development Funds be generating?
APPLES AND PEARS
It can be hard to compare cost per lead across markets and across vendors. Various factors seem to make it confusing:
• It takes longer and costs more to generate leads for more complex, higher-value solutions.
• Sales Qualified Leads are more qualified than Marketing Qualified leads, so cost more.
• Response rates vary across different marketing activity types, so cost per lead varies.
Let’s deal with these issues. Typically referred to as LAC (Lead Acquisition Cost) the industry standard is based on the total cost to acquire a Sales Qualified Lead, meaning that there is customer intent. LAC is not based on the number of closed sales, nor on the number of Marketing Qualified Leads, where there is no established customer intent. Using this definition makes comparisons easier.
Yes, response rates vary across different marketing activity types. And more complex, higher-value solutions take longer and cost more to generate leads for. However experience shows that if we use established measures of LAC based on Sales Qualified Leads these differences average out.
Interestingly variations in solution complexity and value seem to have less impact on LAC than we might expect. That’s a common misconception. It should not cost ten times more to generate a qualified lead for a solution that is ten times more expensive. If it does cost ten times more, then it’s most likely down to poor customer segmentation and targeting.
LEAD ACQUISITION COST
A Google search will turn up a wealth of information about Lead Acquisition Cost. Much of it is not based on the definitions above, so should be treated with care. For example, one source quotes the cost of a ‘Premium Lead in the Technology Industry’ as being $3.75. This is in fact the cost of a contact record on a marketing database, not a Marketing Qualified Lead, and certainly not a Sales Qualified Lead. [See note one below to read more]
Better estimates for 2019, based on a range of sources, show the Lead Acquisition Cost for B2B across all market sectors as averaging $198. This number is quoted on many websites. That’s the total cost to acquire a B2B lead with customer intent averaged across all market sectors. Technology is shown to have the highest Lead Acquisition Cost of any market sector, with an average cost per lead of $208, rising to close to $400 in some cases. [See notes two and three below to read more]
It will come as no surprise perhaps that the average Lead Acquisition Cost from events is much higher than for example from email and digital marketing activities. And that it costs a lot more to generate a lead from a large company than it does from a smaller one.
INEXACT SCIENCE
Measuring and benchmarking Lead Acquisition Cost is for sure an art, not a science. But with experience it’s possible to generate meaningful comparisons, and to get a view on the effectiveness of a vendor’s lead generation process.
Taking average statistics for B2B from across the technology sector, and using the lead definition explained above, we can start to see some trends.
Setting aside high-volume commodity products, the cost per qualified customer lead in the technology sector rarely averages less than $100-$200. Two factors then drive it up. One factor is the size of the target customer. The second factor is the complexity of the solution being sold. High complexity solutions sold to large Enterprise customers have very high Lead Acquisition Costs, sometimes in the thousands of dollars. But that’s unusual. The Lead Acquisition Cost for most ‘mainstream’ technology companies won’t often exceed $500-$800.
At Kovendi we often use $300-$500 as a ‘rule of thumb’. It’s an inexact science, but for the average vendor, with the average B2B solution, selling to the average customer, a Lead Acquisition Cost well in excess of $500 is worth looking into. As with all rules of thumb, it’s easy to think of exceptions, but it helps to frame the discussion.
NEXT STEPS
Understanding lead acquisition costs, and benchmarking lead generation process takes experience and expertise. At Kovendi we have that experience and expertise. Get in contact if you want to know more.