What is a Lead Worth?

Lately, I have been happily attracting leads for my Internet marketing products and services from a wide range of sources including search engine advertising, online classified ads and even an eBay campaign. But am I spending too much? What is a lead worth anyway?

I figured I had better find out! Otherwise I could be spending more money than a lead is actually worth to me.

Here is the process I went through to determine how much I should pay for a lead..

1. Defining what a lead is for you.
There are different definitions of leads in different industries. For myself, I defined a lead as someone who actually visited my web site and signed up for either a free e-book or my newsletter. This way, I know they are interested in the kind of help I offer. They have seen MY web site and they have freely given me their e-mail address to stay in touch.

If you are buying lead lists from someone, the value is much less because the people haven't heard of you, they have just opted in to someone else's list.

2. Tracking your leads.
It is critical that you are tracking your advertising to see how much of it is resulting in leads and sales. I dump 95% of all Internet advertising I try after the first month because my tracking tells me it doesn't work!

Without the ad tracking, I would never know which campaigns were working and I would be wasting 95% of my marketing dollars.

The ad tracking service I use is called 1ShoppingCart. They offer unlimited ad tracking and auto responders.

3. How many leads does it take to generate a customer?
Not everyone who signs up for a free e-book or a newsletter becomes a customer. If only 1 in 100 of your signups become customers, you need to take this into account when you are valuing your lead. In my case, I feel 1 in 25 signups become a customer at some level.

4. What is each customer worth?
How much does your average customer spend with you? At first, I found this difficult to calculate because my customers range from a $9 e-book to $1,000s of dollars each year in coaching. In addition, I receive passive and residual income from my customers which comes from their use of products and services I recommend. But then I looked at my accounting program and simply took my total income for the year and divided it by the number of clients. This showed me that my average client spent $259 in 2004.

5. Calculating the value of your leads.
Here is the formula to calculate the value of your leads:

Value per lead = value per customer ÷ number of leads needed to generate 1 customer.

In my case, my accounting program for 2004 showed an average expenditure per customer of $259. In my own case, I believe that 1 out of every 25 signups will result in a sale.

Value per lead = $259 ÷ $25 = $10.36

In my case, each lead I generate should bring me $10.36 in sales.

5. What about profitability?
If I spend $10 to generate $10 in sales, I don't make any profit and I haven't covered my costs of operating.

If I assume that I currently make $5 profit on a $10 sale, I might want to set a target of paying a maximum per lead of $2. This way, on a $10 sale, my total cost including the cost of the lead plus the cost of the product is $7, leaving me a $3 profit.

In my case, my actual costs in 2004 were only 37% of my sales, so I could afford to pay even more, but the $2 target seems a good one for me to work with. Fortunately, it is easy for me to generate all the leads I need for less than $2 each through the various types of advertising available.

Garland Coulson, "The E-Business Tutor" is an acclaimed speaker, author and coach in the field of Internet marketing for small business and home business. For more information, visit The E-Business Tutor web site at http://www.ebusinesstutor.com or call toll-free in North America at 1-866-413-0951.

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