The Cost-Per-Lead Fallacy in Measuring B2B Lead Generation Investments (Pt 1 of 3)

As much as marketing and sales best practices—not to mention just plain common sense—dictate that cost-per-lead not play a prominent role in managing and measuring B2B lead generation investments, the metric continues to prevail.

I included the following in a blog on the cost-per-lead metric I wrote in the summer of 2010:

“I continue to marvel at the high number of companies that only use cost-per-lead as a basis for lead generation buying decisions.

“This logic—that something called a ‘lead’ can and should be had at consistently lower price points where it will still deliver value—is at the root of a host of sales and marketing problems and deserves a closer look.”

Almost two years later, I am approaching a state of shock that cost-per-lead continues to receive attention in evaluating marketing investments. This metric rewards the wrong behavior, delivers low-value sales leads, and fails to deliver the kind of business intelligence needed to drive marketing ROI now and in the future.

“Don’t you know that roulette wheel is crooked?”

I’m reminded of the story about the cowboy who walked into the saloon in an old western town, ordered a whiskey, and sat down to watch the locals play the roulette wheel. He quickly noticed how the dealer’s unscrupulous behavior made it impossible to win, and he said to the fellow sitting next to him, “That game is rigged for the house. Don’t you all know it’s crooked?” And the fellow said, “Of course it’s crooked. Everybody knows that, but it’s the only game in town.”

For a long time, the cost-per-lead metric has been the only game in town for marketing teams, and I can understand its historical usage. The approach is familiar, fairly straightforward to calculate, and easy to manage. To be fair to marketing, sales hasn’t been the most forthcoming when it comes to sharing sales funnel updates, or credit as sales leads get closer to wins. And developing the ability to measure by outcome-based marketing KPIs requires a significant investment in resources, processes and technology.

The problems and costs of a cost-per-lead approach

But evaluating B2B lead generation success via cost-per-lead only serves to incent high volumes of low quality sales leads. This approach delivers raw, unfiltered sales leads that have not been appropriately qualified, thoroughly vetted, and appended with required criteria. Small wonder that the delivery of these names actually reinforces reps’ perceptions that they’re not getting the high-value opportunities they expect and need to hit their revenue targets.

When evaluating marketing investments based on cost-per-lead, words that come to mind for describing ultimate costs are astronomical, horrendous and even epic. Tens and hundreds of thousands of dollars are wasted every year in terms of lost resource productivity, lost time and—most importantly—lost deals that competitors pick up by running B2B lead generation programs evaluated by best-practice metrics.

So the question becomes this: What are the right marketing KPIs to use that will help us better measure marketing investments and better align marketing activity with overall sales success?

In the second installment of this three-part series, we’re going to look at factors that impact lead costs in the complex sale. In part three, we’ll look at the characteristics marketing KPIs need to have, and then recommend the right outcome-based KPIs for measuring the value of sales leads and planning future B2B lead generation investments.

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One Response to The Cost-Per-Lead Fallacy in Measuring B2B Lead Generation Investments (Pt 1 of 3)

  1. James February 23, 2013 at 3:24 pm #

    Enjoyed reading your point about how it is not that cost effective to chase after leads on their own… it’s important to look at the conversion rate of those leads into sales to get the true marketing cost.