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:
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.
This will be some form of Revenue Target minus existing renewal/repeat business =
new business revenue target.
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
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?”