How Much Should You Pay Per Lead To Be Profitable? (Plus 15 Ways To Increase Lead Flows)

How Much Should You Pay Per Lead To Be Profitable?

Something I don’t see talked about very often is how much a company should pay per lead. If you are a well-funded startup, you can afford to lose some money per acquisition as you figure out the best model that works for you, but if you’re bootstrapped, you don’t have that luxury.

If you’re in the latter category, this post is for you.

For Lead Generation

To start, let’s assume that you sell custom-designed logos online with a website that gets 10,000 visitors a month.

For the sake of simplicity, let’s say your customer lifetime value is $1,000.

Then let’s say you convert 1% of your 10,000 visitors into e-mail subscribers per month. That’s 100 e-mail leads.

Then let’s say of those 100 e-mail leads, 15% are qualified. So 15 qualified leads.

Of the 15 qualified leads, maybe you’ll close 20% of them. That means you’ll close 3 per month.

Here’s how much you can pay per e-mail subscriber:

$1,000 x 1% x 15% x 20% = $.30

Each of your e-mails is worth $.30. Ideally you would give yourself some margin and aim to pay $.05 to $.10 per e-mail lead.

David Skok recommends keeping customer acquisition cost (CAC) at least 3x less than customer lifetime value (CLTV):

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Not too sure about your numbers? Add some more margin by making your CAC 6x to account for additional variables.

This is why it’s important to continue to look at your funnel metrics the whole way and figure out what you can optimize because every percentage point matters.

Now you’re probably wondering, how in the world can I get e-mail leads for $.05 to $.10? Great question.

While it’s very tough to get leads in that range in today’s world, it’s still possible to get close by running contests or even renting e-mail lists. And yes, renting e-mail lists still works (depending on the niche that you’re in).

Like anything else in marketing, your offer has to be compelling and your targeting has to be precise.

But that’s the hard way.

The easier way would be to optimize what you currently already have instead of trying to bang your head against the wall on something foreign. Most startups suck at optimizing what is already working and instead try to add additional custom acquisition channels without first 10x/100xing what they have.

Let’s organize the funnel metrics again (based on what we described above):

  • CLTV (customer lifetime value) = $1,000
  • 10,000 visitors a month
  • 1% e-mail conversion rate = 100 e-mail leads per month
  • 15% qualified leads = 15 qualified leads per month
  • 20% close rate = 3 closed deals per month (10,000 x 1% x 15% x 20%)
  • Worth of an e-mail lead = $1,000 x 1% x 15% x 20% = $.30
  • Target e-mail CPA/CAC (cost per acquisition/customer acquisition cost) = $.05 to $.10

First, we’ll see if we can do some conversion rate optimization on the site and in our e-mail sequence:

  • CLTV = $1,000
  • 10,000 visitors a month
  • 3% e-mail conversion rate = 300 e-mail leads per month
  • 20% qualified leads = 60 qualified leads per month
  • 20% close rate = 12 closed deals per month (10,000 x 3% x 20% x 20%)
  • Worth of an e-mail lead = $1,000 x 3% x 20% x 20% = $1.20
  • Target e-mail CPA/CAC (cost per acquisition/customer acquisition cost) = $.20 to $.40

Just by making a few quick changes in our funnel, we’ve increased our worth of an e-mail by 4x and as a result, we can now pay 4x more per e-mail. That’s A LOT more manageable.

But ‘manageable’ isn’t good enough. We want more.

Price is something to generally revisit because you’re constantly improving your product/service. It makes sense to think about increasing your pricing every quarter due to increased demand, overhead, and other variables.

Let’s continue to build off our previous example of conversion rate optimization success. This time, we’ll be doubling our prices because business is great and we feel that we were undercharging in the past:

  • CLTV = $2,000
  • 10,000 visitors a month
  • 3% e-mail conversion rate = 300 e-mail leads per month
  • 20% qualified leads = 60 qualified leads per month
  • 20% close rate = 12 closed deals per month(10,000 x 3% x 20% x 20%)
  • Worth of an e-mail lead = $2,000x 3% x 20% x 20% = $2.40
  • Target e-mail CPA/CAC (cost per acquisition/customer acquisition cost) = $.40 to $.80

We have even more wiggle room now that we have adjusted CLTV. If we can just make other minor tweaks to get our conversion rates higher and perhaps bump the price up a little more, we’ll be able to get more aggressive with our advertising initiatives.

Read more: The Ultimate Recipe for Effective Customer Lead Generation

Free Bonus Download: Enjoy this handy checklist of 15 ways to increase your lead flows! Click here to download it free.

Here are 15 things you can do to increase your numbers in your funnel:

  • Increase the price – As discussed above, increasing the price is naturally going to provide more room in terms of customer acquisition costs. Check out our podcast interview (with show notes!) with the CEO of Price Intelligently on how to think about increasing prices.
  • Increase conversion rates – Use a tool like Google Experiments, Optimizely or Visual Website Optimizer to increase conversion rates across your funnel. Here are a few things you can do:
    • Add content upgrades to each blog post – Content upgrades are downloadable bonuses for readers. If someone is reading a great post on SEO, an example would be including a downloadable SEO checklist within the post. To access the checklist, the reader would provide their e-mail address. For us, we’ve sometimes seen our conversion rates jump from 2% to 20% on a post (10x increase!). The more relevant a content upgrade is to the content that someone is reading, the higher the conversion rate. Here’s an example of a content upgrade:

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    • Add testimonials – Voices.com reported a 400% boost in conversion rate after doing this. HubSpot curated some strong examples of testimonial pages here.
    • Add live chat – Abt Electronics reported that adding live chat added 20% in sales. You can try Zoipm or Olark.
    • Use a single page checkout – The Vancouver 2010 Olympic store increased its conversion rates by an impressive 21.8% just by switching from a multi-step checkout to a single-page checkout.
    • Add a pop-up – Yes, pop-ups still convert really well today. Tough to argue with the numbers:

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  • SEO/content marketing
    • Don’t just create content, create resource guides – Qualaroo does a good job of creating a guide on ‘What is Conversion Rate Optimization’. If you search Google for ‘conversion rate optimization’, you’ll find that they are #1. The page is a comprehensive resource complete with 12 chapters and a downloadable PDF. Google wants to serve the best results and those that deliver get rewarded.
    • Create 10x content – Did you know that the average content length of the top 3 results in Google is around 2,000 words? Brian Dean from Backlinko did a study on over 1 million SEO results and found that to be the case. This means that content marketing is now table stakes. If you want to win at the long game with content marketing, it’s time to focus on creating in-depth content that provides utility. But it can’t just be fluffy longform content; it has to add VALUE. For inspiration, here are 21 examples of 10x content marketing.
    • Bonus: Neil Patel has a great guide called the ‘Definitive Guide to Conversion Rate Optimization’ that you can get here.
  • Tools – You can use a tool like Hello Bar or SumoMe to collect more e-mails.
  • Paid advertising – When it comes to paid advertising, it’s all about putting the right offer in front of the right target audience. Figuring out the targeting is up to you, but following are some ideas on where you can drive traffic to. From there, you can see what converts best and continue to double down on that.
  • Drive traffic directly to content – If you’ve invested a good amount of your time producing content, it’s worth your while to promote it. In fact, Derek Halpern says 80% of your time should be spent on promoting content. If your content is compelling and has a content upgrade, you’ll naturally get the engagement you want (social shares, e-mail subscribers, etc.). Icing on the cake is the ability to retarget these individuals after they’ve visited your site. Here are some platforms that might work for content promotion:
    • Facebook Ads
    • Gmail Ads
    • Outbrain/Taboola
    • Twitter
    • LinkedIn
  • Webinars – Driving traffic to webinars is a great way to not only get leads, but to convert them as well. If someone has invested one hour of their time with you, they’ve started to build a relationship. And if you’ve given them one hour of knowledge, it’s much easier to ask for the sale. Once you’ve perfected your webinar, you can start to run automated webinars.
  • Lead magnets – If you’ve invested in creating case studies, e-books or white papers, you can use a tool like LeadPages to create landing pages so that people can download the resource after entering in their e-mail. For us, this has converted as high as 50%.
  • Copywriting – Take a look at all the e-mail copy in your autoresponder sequence. Does it seem compelling to you? Does it make you want to convert? If the answer is not a resounding ‘hell yeah!’, then you have work to do. Chances are that you’re not a very good copywriter and that’s fine because you have better things to do. But it’s still your responsibility to find someone who can create copy that converts. It’d also be helpful for you to understand how copywriting can increase your conversion rates. Take a look at this epic post by Joanna Wiebe on copywriting formulas for some inspiration.
  • Social Media: Create better images – Better images drive higher clickthrough rates (CTR) and will ultimately lead to increased referral traffic. This is low-hanging fruit that just requires a simple process to nail down.
  • Add a customer success team – If you want to increase retention rates, a customer success team will help ensure that the customer stays happy. Remember, a happy customer sticks around for longer which means higher CLTV!

Free Bonus Download: Enjoy this handy checklist of 15 ways to increase your lead flows! Click here to download it free.

Conclusion

It’s VERY important to know your conversion numbers at each step of the funnel. When you have these numbers buttoned up, all you need to do is tweak and test each step of the funnel until you have a well-oiled machine. Using an Excel Spreadsheet or Google Spreadsheet will suffice for tracking, but be sure to track your numbers on a daily basis.

From there, it all becomes a simple game of driving the numbers to a satisfactory level at each stage of the funnel and then pouring gasoline onto the fire.

What are some smart ways you know of to increase numbers in your funnel? Let us know in the comments below!

 

Disclaimer: As with any digital marketing campaign, your individual results may vary.