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Cost per-lead versus cost-per-opportunity. Which matters most?

“If at first you don’t succeed, try, try again. Then quit. There’s no use being a damn fool about it.”

W.C. Fields

The most common metric used by B2B marketers is cost-per-lead (CPL), but while it’s important to measure CPL, the ultimate lead generation metric is the cost-per-opportunity (CPO). You can have all the leads in the world, but if they aren’t converting into opportunities they’re as worthless as dust.  

Not only has digital technology revolutionised lead generation, it’s also made a big difference to the way we gather and analyse information, such as conversion rates on specific phrases or banners, etc. But as we become ever more sophisticated with the way we apply metrics, we’re in danger of becoming bogged down in the complexities while ignoring what really matters.

So lest we deceive ourselves into a false sense of security, we need to be certain that we a have a fool-proof metric in place, because although cost-per-lead is a good way of measuring the effectiveness of search phrases, etc, it can also be extremely misleading. 

In our experience, sales people care little about the cost of the leads we generate on their behalf. What they really care about is how many of these leads will actually become viable sales opportunities in their sales pipeline. And this is where the true cost lies.

For this reason, the most important metric we apply when assessing the effectiveness of campaigns is cost-per-opportunity. We also measure cost-per-lead, but unless this is measured against CPO, it is irrelevant.

Cost-per-lead models drive down the cost of each lead by generating more leads. But as there is only a finite number of high quality sales-ready leads in your target market at any given time, increasing the number of leads can leave you with a corresponding drop in quality.

Cost-per-opportunity, conversely, (which measures how a lead performs once it enters the system) emphasises quality over quantity, and is the single metric that will help you understand how well your sales team accepts and pursues leads. It shows if your leads are actually leading to sales conversions and to what level your lead generation provider is contributing to your sales pipeline.

The question to ask is: “What proportion of these leads is helping us sell more and how many will convert into profitable customers?”
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So, in a nutshell, these are the three metrics that every marketer should track as part of their lead generation programme:

• Cost-per-lead ratio (CPL) – the number of enquiries or expressions of interest divided by the cost of acquisition. 
• Cost-per-opportunity ratio (CPO) – the number of pre-qualified sales-ready leads divided by the cost of acquisition. 
• Cost-per-sale ratios (CPS) – the number of closed sales divided by the cost of lead acquisition. 

By all means drill down into the minutia, but all the rest is gravy – never lose sight of the bigger picture!

Also, never take yourself too seriously – a cautionary tale…

When Apple programmers named a software application “Sagan” in honour of the renowned astronomer Carl Sagan, the latter – clearly not flattered – threatened to sue. With their feelings hurt, Apple backed down, renaming the application “BHA”.

Only later did Sagan discover that the new name was in fact an acronym – for “Butt-Head Astronomer”!

Thanks for reading. As ever, your comments and ideas are very welcome. 

And always to a higher response!

Norman 

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