Memo to the CFO: 3 Lead Generation Metrics That Matter

In every interview or conversation I have with marketers, one question always arises: What metrics should lead generation be judged by?  I always answer with the same responses:

1.    Lead-to-opportunity conversion: For every lead you buy, how many turn into sales opportunities.

2.    Cost per opportunity: Instead of CPL (more on this below), calculate the lead-generation costs and divide by sales opportunities created.  This should include your lead development/qualification costs and nurturing costs.

3.    Total pipeline created: How much sales pipeline has been created by your leads?

If this makes sense, maybe  I should address why I don’t recommend CPL (cost per lead) or ROI (return on investment) as metrics:

  • CPL: Bragging about your average CPL is fine, but if it keeps you from higher-converting — albeit more expensive — leads, then you’re missing the boat. CPL should be a by-product of cost-per-opportunity. If a lead is converting, then you should be willing to invest more. Conversely, you may be buying leads for lower than anyone else, but your cost per opportunity is the same or higher because of the expenses and time it takes to convert them. Repeat after me: CPO, not CPL.
  • ROI: ROI is defined as lead-to-closed business.  I get it:  you have to track this. (If you do, make sure you are tracking ROI over a sufficient period of time — probably two to three months after typical sales cycles.)But ultimately, I argue against this metric. It’s simple when you consider it in terms of baseball: Alex Rodgriguez is one of the best players in baseball because he does his job — he fields well, hits home runs, creates runs, etc.  He has not been on a team that has won the World Series. Yet he will still get paid one of the highest salaries in baseball and will still likely win the MVP award. That’s my point: we all play to win (in business, by getting revenue), but everyone has to play well to get the win.  The marketing reps should be judged by whether they did their job, which in this case is creating pipeline. The sales team’s job is to close that business. Once marketing creates an opportunity, sales must execute in order to create revenue. The net-net: if marketers creates the pipeline, they have done their job and should be judged accordingly.

There you have it.  I’m open for debate.

Craig Rosenberg is the Funnelholic. He loves sales, marketing, and things that drive revenue. Follow him on Google+ or Twitter

  • http://www.ciceron.com Dawn Hepper

    Great post and couldn’t agree with you more regarding the Cost per Lead metric. It also seems to me that Cost per Opportunity is more of a “CYA” metric for the Marketing team if it’s used exclusively at the expense of tracking (and reporting) ROI. ROI translates into bottom line profit, and the reality is that executives “get” this metric. Those same execs are the ones to shoot the marketing team if the ROI is not what it should be. I’d keep reporting ROI, but also reporting on lead quality (lead to opportunity conversion) and your lead close rate to show the relationship of both marketing and sales efforts to ROI. Just a thought.

  • http://digitalbodylanguage.blogspot.com Steven Woods

    Craig, great post, and I definitely agree. You can’t change your actions based on “endpoints” that are too far away and too far out of your control, even if they are the “right” ones. Hence not measuring through to ROI for any actionable metric.

    The only point I would have though is whether, with agreement from sales on a Marketing Qualified Lead definition, you should measure mostly to MQL. From there, watching the ratio of Opps/MQLs to make sure you haven’t changed the dynamic is key, but it brings the endpoint closer to marketing without changing the overall approach.

  • http://www.noozit.com/author/David+W.+Locke David Locke

    Each portion of the enactment chain/sales funnel could have its own ROI. Then, it would be obvious if lead generation was happening and sales were not. That would clearly decouple lead generation from sales.

    The lead could be qualified in the enactment chain/sales funnel and lead nurturing before sales gets it. Just break the qualification into small surveys once the prospect is moving through the enactment chain. Sort them out there and keep the relationships going, as appropriate for lifecycle marketing needs like keeping users engaged, where a sales rep would throw them out as disqualified, because those users drive upgrade sales, something that hunter sales reps don’t like much, but is critical to the company. You end up with a network of self-selecting documents and survey routers all linked together wheter online or offline. Each of them would have an ROI and be subject to A/B testing.

  • http://www.initialcallblog.com Catherine Brown

    Thanks for raising the point that we’ve been discussing in my organization. If we could all clarify what we mean when we talk about “leads!”

    Specifically about the post: we should all know what our qualified lead-to-closed business costs are and many people don’t know. It’s my opinion that Cost per Lead is meaningful to track in as much as we all have choices on the WAYS we get our leads; different methods range in price and we are all looking for effective, low cost options. However, Cost per Opportunity tells you the more relevant information… what a “real lead” costs.

  • http://www.anythinggoesmarketing.blogspot.com Chad Horenfeldt

    Very good post and I like how your posts build off each other. Question for you: how do you track cost per opportunity? Do you look at the first marketing initiative (“Campaign”) that led to the opp, the last last marketing initiative or a mix? Just wondering as I come across this daily and wanted to get your opinion.

  • http://www.silverpop.com/blogs/demand-generation/will-schnabel.html Will Schnabel

    Craig, this is spot on. Unfortunately, CPL is still the most widely used and misleading metric in the arsenal of a B2B marketers. If used by itself, it will point us to spend where we sometimes get least benefit. Your top three are perfect, but I’d also mention that measuring from sales qualified lead (or confirmed opportunity) to the close is useful for another part of marketing, that being the product marketing group. They can add tremendous value in helping support the bottom part of the funnel and in improving sales close rates.

  • http://www.silverpop.com/blogs/demand-generation/will-schnabel.html Will Schnabel

    The way we have seen the cost per opportunity measured most frequently is off of the first marketing touch, or spend. Then the other marketing efforts can gain credit, or influenced revenue, for the opportunity. Tracking both direct and influenced opportunities gives a broader picture to what is working, from lead generation through lead nurturing.

  • http://www.interlinkone.com John Foley, Jr.

    I agree with your post except for the A-Rod piece – he cheated!

    Have a good day.

    John

  • http://randomjunkyramblings.blogspot.com/ Mohit

    Craig,

    Brilliant and well thought out post! Your post is a great demonstration of separating “infrastructure” metrics (Cost Per Lead- CPL) vs. “functional” metrics (Cost Per Opportunity- CPO).

    CPO is tied to the lead and pipeline generation funnel, and not to the various tools and mechanics that impact CPL. CPL feeds into CPO generation.

    I am truckloads of B2B experience and what you say makes sens. More on this here:
    http://randomjunkyramblings.blogspot.com/2009/08/sustaining-brand-conversation-behavior.html

  • http://www.unrivalledconsulting.co.uk Steve Bent

    Great piece.

    Totally agree with the ROI measurement. It amazes me that it isn’t measured as opportunity, but rather return.

    (btw – I’m not a markerter, I’m sales focused and I still agree!)