Lead generation is one of the most critical aspects of a marketing strategy. Available statistics show that 85% of B2B marketers consider it an important marketing goal.
It is not a simple exercise – the process can be challenging and time consuming because there is no one-size-fits-all formula for generating leads. B2B companies are therefore faced with the dilemma of having to build inhouse lead generation teams or outsource the function.
Due to the demands and complexities involved, most B2B companies choose to outsource their lead generation functions. But even as they do so, there is always the underlying question of what the cost of outsourcing lead generation would be for the company.
In this article, we explore what lead generation outsourcing entails and how lead generation costing is done. But let’s start with unpacking lead generation.
In This Article
Defining Lead Generation
In lead generation, leads refer to the number of people who engage with your company in order to decide whether they will buy or not.
On its site, HubSpot defines lead generation as “the process of attracting and converting strangers and prospects into someone who has indicated interest in your company’s product or service.”
Lead generation does not focus on conversion – even when people visit your site and fail to take the action you want, they become leads.
The most critical thing to bear in mind is that there are two main types of leads:
- Marketing Qualified Leads (MQLs): These are prospects that you have enticed successfully to engage with the marketing efforts your company puts forth. A good example of MQLs is website visitors who complete an offer form on your landing page
- Sales Qualified Leads (SQLs): These are people who have interacted with your business and taken actions that indicate intention to become a customer. Examples of SQLs are people who make a reservation or send an inquiry about a product or service
What Is Lead Generation Outsourcing?
Lead generation outsourcing means getting external companies to build your company’s sales pipeline. Such companies do this by performing a wide range of lead generation activities including cold calling and product or service promotion for your company. Outsourcing lead generation is not the only option that companies have.
Prior to outsourcing lead generation, B2B companies will often check whether their current staff have the capacity and skills to perform the task. Most companies will opt for in-house lead generation if they have experienced teams working on generating leads full-time. This lead generation is also preferred where a company’s primary leads come from inbound marketing strategies.
On the flip side, a B2B company will be inclined to outsource its lead generation function when:
- It lacks sufficient resources to establish a fully-fledged lead generation function internally
- Their primary leads are generated through outbound marketing strategies like appointments and cold calling
- They have a good lead qualification process and need to develop one for lead generation that involves all parties
Costing Lead Generation
If you are outsourcing lead generation for the first time, you may be wondering the kind of costs a lead generation company would charge. Often, several costs are summed to determine the total cost of lead generation. While these costs will vary depending on the lead generation channel that will be used, they include:
- List Purchase: These are costs relating to the purchase or renting lists like third party addresses and telemarketing lists for use in direct marketing
- Media Distribution: Costs related to reaching a company’s target audience
- Incentives: Expenses that relate to giving discounts or rewards to high value prospects
- Campaign Design: Costs relating to creating effective marketing campaigns
- Agency and Labor: Costs relating to hiring lead generation agency to manage marketing processes such as SEO for digital marketing campaigns
- Other costs: Costs related to managing marketing campaigns in besides the ones listed above
With this in mind, let’s look at the various metrics that are used to calculate the cost of lead generation:
1. Cost Per Lead
This metric is commonly used to determine the efficiency of a marketing campaign. It is pretty simple to calculate. It is calculated by taking the total amount spend on a marketing campaign and dividing it by the number of leads that have been generated from the campaign
If you spent $5,000 on a pay-per-click campaign and converted 500 visitors into leads, a cost per lead calculation will look like this:
Cost per Lead = $5,000 / 500 = $10.
Most people may want to keep the cost per lead as low as possible in order to maximize their return on investment. But this does not work in lead generation. Infact, it is the opposite – the higher the cost per lead, the more qualified the lead.
2. Average Cost Per Lead
Statistics show that the cost of generating one lead averaged at $198 according to 2017 data. They also show that the cost per lead (CPL) fluctuates based on industry, company size and revenue as shown below.
From the image above, the CPL increases as the size and revenue of the company increases. Companies that have a revenue of $500+ million and 1000+ employees tend to pay more per lead while those that have less than 50 employees and a revenue that is below $1 million spend less per lead generated.
Even so, the average CPL varies from one industry to another based on industry competition and target market. Here’s the average CPL by industry – from the lowest to the highest- based on data from different source:
|Travel and Tourism||$106|
|Media and Publishing||$108|
According to this data, Healthcare and Technology have the highest average CPL at $162 and $208 while retail and non-profits have the lowest at $34 and $31 respectively.
How Many Leads Do You Need?
The first step towards determining the cost of lead generation is knowing the number of leads you need. When it comes to costing of outsourced lead generation, just knowing how much each lead will cost you is not enough. You also need to be clear on the number of leads that you will need to reach your revenue targets.
When you outsource your lead generation function, the aim is to increase revenue and enhance efficiency in your campaign. There are several metrics you can use to determine the number of customers and leads that you will need to meet your revenue targets. These include:
1. Marketing Driven Deals
Marketing driven deals refers to the number of deals your company needs to close to realize the set marketing driven revenue.
Marketing driven revenue is basically the total income your company gets as a result of the marketing efforts it rolls out. To calculate your marketing driven deals, you need to take the marketing driven revenue and divide it by the average sale price.
If you have set your marketing driven revenue at $630,000 and your average sale price is $900, your marketing driven deals would be:
Marketing driven deals = $630,000 / $9000 = 70 Deals
This means you need to close 70 deals, each worth $9000 to meet your revenue target of $630,000. The number of deals here represents the number of customers you need to realize your marketing driven revenue target.
The average sale price is the amount each customer spends on your company. It is calculated by taking the total net sales and dividing it by the number of units sold.
2. Leads Needed to Meet Marketing Driven Deals
Once you have your marketing driven deals, you can go a step further and determine the number of leads you will need to get those deals.
The easiest way to calculate this is to divide the number of people who visit your shop or website by the lead conversion rate.
Let’s use a 2% customer conversion rate in this example.
To determine the number of leads you’ll need to close deals that will enable you to meet your marketing driven revenue, take the number of deals needed (70) and divide it by the lead conversion rate.
Number of Leads Needed = 70 / 0.2 = 3,500 leads
This means you need to generate 3,500 leads to get 70 customers who will spend $9000 on your business.
3. Lead to Opportunity Ratio
This metric helps B2B companies in measuring the number of leads they need to convert one lead into a customer. If you use a predicted lead opportunity ratio of 3, it means that for every 3 generated leads, you have an opportunity to convert one lead into a customer.
To determine the number of opportunities needed to convert 70 customers, multiply the predicted lead opportunity ratio by the number of deals or customers:
Number of Opportunities Needed = 70 x 3 = 270
Instead of spending money and time generating leads internally, outsourcing lead generation is the easiest way to get the number of qualified leads that B2B companies need to push their sales revenues up. This option works particularly well for companies that have a limited number of prospects. The cost of generating leads is affected by different factors including lead generation channel, company size, revenue levels and industry. Lead generation is about maximizing return on investment on each customer acquired. Where return on investment is high, the cost per lead is also high.