Before we can calculate the cost, we need to know what a qualified lead is. A qualified lead has to satisfy four different criteria.
1. The person must need your product or service. There absolutely has to be a use for the item.
2. The person has to be able to pay for the item.
3. The person is a decision maker or at least, can exert a strong influence to make a purchase.
4. The person knows when he/she will make the purchase.
Anyone who fulfills these criteria can be a potential customer. And chasing this customer is called lead development. So how much must you spend to generate a qualified lead from the people you target? Some examples of expenses incurred may be in the form of advertisements, labor, postage or phone bills. Whatever method of customer interaction you use, they all cost money. If a meeting is required before a lead can be qualified, regard that too as a cost. They can be in the form of transport cost, car parking fees, brochure and calling cards.
Not all inquiries can be qualified. The people that make these inquiries simply cannot be reached. They could be on vacation, ignoring you, too busy, not serious, or just didn't meet the four criteria listed earlier. Assume that about 15% of all inquiries cannot be qualified. That leaves about 75% of the people you can reach. Out of these 75% you get in contact with, let us assume that the average qualification rate would be about 20%. So we can safely say that 20% of those you interact with will become qualified leads.
Example of how you calculate the cost of a qualified lead:
Number of inquiries: 100.
Number that qualify: 75.
Cost of qualifying, per inquiry: $20.
Number of qualified leads (20%): 15
Total cost of qualifying ($20 X 75): $1,500
Campaign cost of $10,000 + qualifying cost = $11,500
Total cost of $11,500 divided by 15 qualified leads = $766.66
In short, you must invest $766.66 to attract each customer who needs your product or service. This amount varies from industry to industry, but it's more or less a very significant amount and it is in your best interest to improve the percentage of qualified leads.
One great idea to improve your percentage of qualified leads is to offer a gift to the people that made an inquiry. Ensure you choose a gift that will enable people to remember you and that has your contact info printed on it. The gifts need not necessarily be expensive, as long as they can improve chances of qualifying the leads.
Assuming you budget $2.00 a lead and decide to give promotional pens with your logo and contact info printed on it. The calculation of the cost of qualifying leads will now look like this:
Number of inquiries: 100
Number that qualify: 75
Cost of qualifying, per inquiry: $20 + $2 (cost of pen) = $22
Number who turn out to be qualified leads (24%): 18 (Assume gifts improve your chances by 4%)
Total cost of qualifying ($22 X 75): $1,650
Campaign cost of $10,000 + qualifying cost = $11,650
Total cost of $11,650 divided by 18 qualified leads = $647.20
Wait a minute. Cost for 15 qualified leads without gifts was $766.66. Cost for 18 qualified leads with gifts is now $647.20 This is a $119.46 savings with 3 extra qualified leads!
Now let us consider another angle of calculating the cost of chasing a lead. Suppose we need to qualify a lead by paying a customer a visit. This will incur transport, labor and car parking cost. It is reasonable to assume that it will cost $50 per trip. Add the cost of the campaign, which includes brochures, marketing materials, samples and the cost of the business card. Assume these materials cost another $30. In total, the cost of qualifying this lead is $80.
If the customer is not sure if he or she needs this product or service, this trip can be totally wasted. Once you walk away from the customer, your marketing materials may end up in the trash can. Your call card may end up buried under piles of cards. But the situation can be salvaged when you leave a gift behind. Especially if it is a well chosen and practical gift, it almost never ends up in the trash, nor can it be buried under piles of rubbish. It stays in front of the customer's desk.
Immediately, your chances of turning this customer into a qualified lead somewhere in the future increases! Assuming you choose the same $2.00 pen as a gift with an extra 2.5% percent of the total cost, you have increased the odds by many times.
There are many angles from which you can analyze the cost of chasing a lead. But when you factor giving as part of your strategy, most of the time you can drive down the cost of chasing a lead. In a recent American Express Survey conducted by OPEN, budgets for client and customer gifts rose 15% in 2005. This clearly demonstrates that businesses are realizing the value of gifts and are actively making giving a priority in their marketing strategy.
This is the amazing value of gifts that will help you improve your lead qualification and your lead generation as well. Practice giving today and expect it to reduce cost and increase sales. It may just put you in a position never achieved before.
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KS Ong, Kuala Lumpur, Malaysia KS Ong, is a corporate gift specialist consultant who helps businesses incorporate gifts and premiums into their marketing strategy. He runs a gift review site at http://www.netadv.com.my.
