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

The introductory post in this series addressed the problems and costs of applying the cost-per-lead metric to measure the success of B2B lead generation investments. In the second post, we looked at elements of a complex sale that impact B2B lead generation costs.

Let’s now turn our attention to the characteristics the right marketing metrics should have and then use those characteristics to clearly identify the marketing KPIs needed to correctly measure lead value in B2B lead generation.

Shifting to outcome-based accountability and revenue metrics

While cost-per-lead measurement has been the only game in town for longer than we care to remember, we are seeing radical and positive shifts in how marketing is evaluating qualified leads.

For one, there is greater recognition that marketing should deliver qualified leads with three essential characteristics:

  • Leads must be extremely high quality and fully vetted.
  • Leads must offer high potential close value.
  • Leads must be more likely to convert deeper in the funnel.

Leveraging these three characteristics is not possible using cost-per-lead as a primary benchmark. Marketing must align its B2B lead generation activities and resources with deeper-in-the-funnel outcomes like conversions along with overall revenue generation.

There was an enlightening roundtable discussion on this topic at Focus.com, The CMO’s New Revenue Metrics. The panel included Rachel Spasser, Vice President, Marketing, Ariba; Jim Lenskold, President and Founder, Lenskold Group; and Debbie Qaqish, Chief Revenue Officer, The Pedowitz Group.

Their observations on trends include the following:

  • Marketing’s mission includes direct responsibility for a higher portion of revenue.
  • Depending on a marketing resource’s role and level, parts of compensation can be tied to performance metrics like overall revenue and deeper-in-the-funnel outcomes.
  • Marketing KPIs are moving from top-of-the-funnel expense metrics to deeper-in-the-funnel actionable indicators like pipeline deals.

For these trends to positively impact overall sales success, I need to re-emphasize that qualified leads must be fully vetted, possess the potential for high close value, and have high conversion ability. The reality is qualified leads with these characteristics will cost more and will not fit inside cookie cutter cost-per-lead measurement criteria.

Not seeing the forest for the trees

The historical focus on cost-per-lead in B2B lead generation is a myopic view that incorrectly places attention on a detail rather than the overall picture.

When I think of a way to step back and view the marketing KPI “forest” rather than the cost-per-lead “tree,” the data-to-wisdom continuum comes to mind.

Data-to-Wisdom Continuum
Data          >          Information          >          Knowledge          >          Wisdom

At each stage in the continuum, greater value is added. Facts are organized meaningfully, and assessment and synthesis deliver the ability to leverage findings for future success.

Likewise, marketing indicators can be framed in a sequence that conveys progressively more actionable value.

Marketing KPI Continuum
Tactical / Transactional Operational Efficiency Outcome Strategic / Predictive
Measurements Measurements Measurements Measurements

The cost-per-lead metric falls somewhere in the “Transactional/Tactical” to “Operational Efficiency” range. But we’re looking for marketing indicators later in the continuum—ones that are aligned with sales success and that can be leverage to support predictive marketing investments.

In the search for the holy grail of marketing KPIs, we want ones that do the following:

  • Demonstrate the impact of early-stage activity on later-stage outcomes.
  • Correctly emphasize the ROI value of qualified leads over their cost.
  • Tie B2B lead generation activity to overall revenue and profits.
  • Identify the most successful marketing initiatives.
  • Deliver insights that can be leveraged to run future high-return activity.

The cost-per-lead metric accomplishes none of the above.

In the Focus roundtable, Jim Lenskold shared a question that illustrates the importance of applying the right KPIs to predict future B2B lead generation performance. Citing findings from the Lenskold Group Lead Generation Marketing ROI Research Study, lead generation marketers were asked how much profits would be improved with 10% more budget, and 44% reported they didn’t know.

It’s difficult to manage to greater revenue, profits and growth when outcome-based KPIs are missing in action.

So if not cost-per-lead, what are the right marketing KPIs?

The best way to identify and discuss the right marketing KPIs is to place them inside the lead stage framework described earlier.

In the table below, the first row contains metrics available at that lead stage. The second row contains KPIs that can be derived from those metrics.

Inquiry MQL SAL SQL Sale
  • # of inquiries
  • Transactional response rates (visits, clicks & opens)
  • Initiative spend
  • # of leads qualified by marketing & delivered to sales as sales-ready
  • Initiative spend
  • # of leads accepted as sales-ready and added to the pipeline for working
  • # of leads further qualified and added to the forecast as winnable opportunities
  • # of sales
  • Revenue-Per-Sale
  • Profit-Per-Sale
  • Average selling/deal price
Metrics>             A1 A2 A3 A4 A5
  • Cost-Per-Inquiry
  • Inquiry-to-MQL ratio (rate at which inquiries convert to qualified leads)
  • Cost-Per-Lead
  • MQL-to-SAL ratio (rate at which MQLs convert to pipeline status)
  • Sales pipeline created by MQLs (pipeline value overall & by initiative)
  • MQL-to-SQL ratio (rate at which MQLs convert to forecastable opportunities)
  • Cost-Per-SQL (per opportunity)
  • Sales forecast created by MQLs (forecast value overall & by initiative)
  • MQL-to-Sale ratio
  • SQL-to-Sale ratio
  • Cost-Per-Sale
  • ROI (value overall & by initiative
KPIs>               B1 B2 B3 B4 B5

First, a quick word on the cost-per-lead approach:

Cell B2: MQL KPIs

Cost-Per-Lead

Cost-per-lead is not the correct metric for measuring marketing initiative success for the following reasons:

  • It incorrectly incents volume over quality.
  • It incorrectly emphasizes cost over ROI value.
  • It doesn’t deliver high quality, high value or more convertible leads.
  • It adds costs when sales discovers many leads don’t meet criteria.
  • It is appears too early in the funnel to be meaningful in measuring outcomes.
  • It is not actionable in planning and predicting future investments.

Following are comments on eight KPIs highlighted in yellow and aligned with their cell positions in the table above.

Cell B3: SAL KPIs

Lead-to-Pipeline Conversions (MQLs-to-SALs)

The lead-to-pipeline conversion ratio demonstrates solid marketing and sales alignment: acceptance demonstrates sales’ confirmation that these are the qualified leads they need and expect.

Sales Pipeline Created

Pipeline created reflects sales’ acceptance of MQLs for further working. This, too, validates marketing’s execution on theSLA.

Cell B4: SQL KPIs

Lead-to-Opportunity Conversions (MQLs-to-SQLs)

Stronger than the previous two, this ratio confirms that marketing is on target with delivery of qualified leads that convert to forecastable opportunities.

Cost-Per-Opportunity (Cost-Per-SQL)

A more accurate depiction than cost-per-lead, cost-per-opportunity ties costs to outcome-based performance. Opportunities in this stage act as confirmation that leads are meeting requirements around quality, value and convertibility. Meeting these thresholds can naturally require greater investments than programs evaluated on a cost-per-lead basis.

Sales Forecast Created

This indicator elevates opportunity value at the macro level by identifying composite deal value from either combined or individual marketing initiatives.

And once you know win metrics in cell A5—number of sales, revenue-per-sale, profit-per-sale, and average selling/deal price—you can calculate key final-stretch indicators like the following:

Cell B5: Sale KPIs

Lead-to-Sale Conversions (MQLs-to-Sales)

When favorable, this indicator acts as ultimate validation that marketing is providing leads that align with overall performance and revenue goals.

Cost-Per-Sale

Determining cost-per-sale closes the loop on the cost/benefit ratio and supports more accurate investment evaluation.

ROI

This is where the dust settles and high level conclusions can be drawn—at both the collective and individual initiative level. It’s fairly common when all is said and done to find that leads, opportunities and sales that cost more do so for a reason: they generate greater marketing ROI.

The right KPIs go beyond cost-per-lead to reveal the B2B lead generation programs and investment levels needed to meet corporate growth and revenue targets, as well as investor and analyst expectations.

Concluding comments

Selecting and applying the right marketing KPIs are driven by the nature of the sale, how a lead is defined, and the compelling need to evaluate B2B lead generation activity based on lead quality, lead value and lead convertibility. For these reasons, deeper-in-the-funnel, outcome-based numbers are required. Only these types of metrics can be successfully leveraged to plan future initiatives that can be predicted—based on a track record—to help sales sell more, sell better and sell faster.

I might also add a comment on how much a complex sale lead should cost. More than you think, but probably a lot less than you are paying when all factors are consider. Is it possible to create high-quality, high-value and convertible leads to support a field sales force selling a $100,000-plus solution for $350 per lead? Frankly, no. Over the past 20 years, the average cost-per-opportunity for a relatively complex sale has ranged from the high triple-digit to low four-digit range—and these programs returned excellent ROI.

I encourage you to join with me to put the final nails in the cost-per-lead coffin and affirm it is not an acceptable metric for measuring the success of marketing investments for the B2B complex sale.

Let’s make this the year to embrace marketing KPIs that are outcome-based, strategically predictive, and fully aligned with both sales success and overall revenue generation.

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