By Sean Fenlon on April 2, 2008
I am continually amazed at how MAJOR components of lead/marketing/advertising performance are overlooked by even some of the biggest buyers in leads, marketing, and advertising in the world. Many lead buyers have become myopic in their elevation of “Acquisition Cost” as the ultimate indicator of lead performance. This is two-dimensional thinking. Acquisition Cost is determined by calculating the cost-per-lead and dividing it by the conversion rate of the lead into a sale. If a lead costs $50 and 5% convert into a sale, the Acquisition Cost is $1,000.
“Acquisition Cost” is veiled by other terms, specific to the respective industry. In the mortgage industry, Acquisition Cost is “Cost per Funded Loan.” In Education, Acquisition Cost is “Cost per Enrollment,” in Insurance, Acquisition Cost is “Cost per Policy,” and so on.
If an organization is experiencing an average Acquisition Cost of $1,000, then a new lead source that that yields a $500 Acquisition Cost is twice as good, right?
Hmmm… oh, really?
Let’s take a closer look, shall we?
EVERY organization that spends money on leads, advertising, and marketing does indeed have an average Acquisition Cost (whether or not they know it or are tracking/calculating it is a different matter). Those same organizations also have an average number of sales per sales person per month.
The organization with an average Acquisition Cost of $1,000 may be attracted to an option that promises a $500 Acquisition Cost. But what if the average sales person who averages 4 sales per month at $1,000 Acquisition Cost drops to 1 sale per moth with a $500 Acquisition Cost. Is that really a better option? Not a chance.
Here’s another hypothetical…
Should the same organization with a $1,000 average Acquisition Cost consider a source that forecasts a $1,200 Acquisition Cost (20% above the average?). Of course not, right?
Hmmm… Oh really.
Let’s take another closer look….
The organization with an average Acquisition Cost of $1,000 may be inclined to avoid a source that promises a $1,200 Acquisition Cost. But what if the average sales person who averages 4 sales per month at $1,000 Acquisition Cost increases their production to 7 sales per moth with a $1,200 Acquisition Cost. Is that better or worse? Better by a mile in just about any organization.
So, why the change in the average number of sales per sales person per month in the examples above? It’s simple. Higher-priced options tend to require less TIME to convert into a sale than lower priced options. Lower-priced options feature lower prices per lead, which may indeed lower acquisition cost, but at the added cost of TIME.
This concept of TIME is a third-dimension that needs to be considered by buyers of leads, buyers of marketing services, and buyers of advertising. The time dimension can be calculated as a positive or a negative (either one works, but it’s critical to include on or the other).
As a positive dimension, the time dimension means productivity. In other words, how productive can the average sales person be with each individual option. Most sales professionals are in highly-paid positions, and their time is their most valuable asset. As much of their time should be spent selling as possible and the amount of time attempting to make contact with a potential buyer, qualifying the buyer, and determining if the buyer is interested, should be kept to a minimum.
As a negative dimension, the time dimension means cost. What is the fully-loaded cost of working a lead source? This extends beyond the price paid per lead, and should include the average sales person’s compensation, the cost of their phone, the cost of their computer, the cost of their connectivity, etc. These are all sunk costs, and the more deals a sales person can close, the more these costs are minimized in the context of a variable cost structure.
You can use either the positive or negative approach (you can guess which one we’re biased towards here at DoublePositive), but it’s critical to add that 3rd dimension into calculations and decision-making. To ignore this data is to ignore one if the most influential dynamics affecting your organizations costs and productivity.