On another thread, Vol Agent brought up a great point.

We were discussing how to identify a high-quality lead and he mentioned the following:

"But one thing I have noticed. Everyone gets obsessed about closing percentage and cost per lead when it comes to leads. Yet without fail, almost everyone ignores the two real metrics. Cost Per Acquisition and Return On Investment. And even those pale compared to the real one, Net Profit."

I agree with his sentiments so here's a quick rundown of how to measure the ROI on your lead generation.


Here's how to measure ROI of lead gen

How much did you spend on marketing = A $10000
# of leads acquired = B 100
closing percentage = C (always an arbitrary figure) let's say 10% of leads turn into sales

# of sales from marketing = D so 100* 10% = 10 sales

Cost per lead = A/B = $10,000/100 = $100/lead
****Cost per acquisition = A/D $10,000/10 = $1,000 a sale ******

Client Lifetime Value = E= % of commision * premium * # of months
Let's say 10% of 10,000 * 5 year retention (60 months) = 5,000

Current Revenue Generated From Marketing = F, F= D*E = $5,000 * 10 = $50,000*

Therefore by investing $10,000 in marketing, you generated $50,000 worth of commissions over a 5 year period. ( this is slightly better than breakeven as you can write off advertising and marketing costs)

Obviously, $50,000 over the course of 5 years isn't the same as $50,000 today. However, it is still safe to assume that the present value of $50k ($30k with a 10% discount rate to be extremely conservative) is a 5x ROI.

You put in $10k, you got out $50k.


Obviously net profit = this minus expenses.
 
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