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How much to spend on lead generation

Dec 16, 2014 by Alex MacKay

This is a common question and in many ways, to me, is only part of a bigger challenge. To determine how much to spend on lead generation really should be part of determining how much to spend on each aspect of marketing (which ultimately needs to be aligned directly with the spend on sales and business development.). I’ve seen this type of thinking work effectively:

  1. Determine the cost per qualified lead (how much marketing budget is expended to generate a lead that becomes qualified (according to agreed criteria) and passed on to sales.
  2. This will be some form of Revenue Target minus existing renewal/repeat business = new business revenue target.
  3. Analyze what is in the current pipeline. Ideally this should be at least 3 times the revenue target and a best practice is 4 times. You will now be able to calculate how many more leads are required to produce a high probability of revenue target attainment.
  4. Always add a buffer (15 to 20% is a good guideline) based on your average deal size.

That’s the basics. To do it right and still keep it simple (for me you can only make things simple when you truly understand the detail) make sure to analyze the source of all leads. Categorize how leads are being achieved. Are they coming from the website, email campaigns, trade shows, telemarketing, referrals, etc? Dig deep! If most of the leads are coming from the website for example, then from which link or landing page, etc? If a lot are coming from email campaigns then which specific email types are working best?

This type of analysis is necessary to make good decisions about lead generation investments. For example, if you determine that your pipeline funnel is full, then the investment in lead generation is likely not a priority. Your better off investing the marketing spend in items that support advancing the sales cycles (collateral, reference visits, executive briefs, etc) and closing (executive calls, ROI tools, business case consulting) what’s in your pipeline. However, if you find the pipeline to be in a shortfall of what is needed to be successful, then investing in the optimal kinds of lead generation activities that have proven to be the most successful is how you answer the question “how much do we spend on lead generation?”

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