How to Estimate Total Value of a Sales Lead

  • Total Value of Lead

Understanding and knowing what the total value of a sales lead is for your business is crucial when it comes to managing advertising and marketing budgets in order to achieve maximum profitability. Simply, if you overestimate the value of a lead, you could end up running unprofitable campaigns that lead to big losses. On the other hand, if you underestimate the value you risk missing opportunities that your competitors will snap up.

So how do you get the right balance? For many businesses that answer is not black-and-white, especially if each lead is different or if there’s not a lot of sales history data to go from, such as for a new venture. Here’s an example using a very simplistic formula that you could start with and then build on it. It underlines two important factors that are often overlooked, word-of-mouth gain and lifetime value.

Let’s take Some Wedding Photography as a typical photography business…

Short-term conversion value for Some Wedding Photography

  • Average photo shoot revenue: $3,000
  • Profit margin: 45%
  • Leads that convert to a deal: 20%
  • Value-per-conversion (short-term): $270 ($3,000 * 45% * 20%)

Factoring in word-of-mouth

Some Wedding Photography has data showing that for each customer they usually gain 15% in additional business through word-of-mouth. Here’s how we factor that in:

  • Value-per-lead (short term): $270
  • Gain from word-of-mouth: 15%
  • Value-per-conversion (+word-of-mouth): $310.50 ($270 * 115%)

Note that we multiply by 115% instead of 15%.  This is because we are amplifying a gain as opposed to a loss.

Factoring in lifetime customer value

Lastly, Some Wedding Photography knows that each new customer makes repeat purchases worth approximately $2,000 in revenue over their lifetime, like ordering extra prints or possibly booking another shoot later on in life. It’s easiest to factor this into initial deal value.

  • Average deal revenue: $3,000
  • Repeat business over lifetime: $2,000
  • Profit margin: 45%
  • Lifetime profit-per-customer: $2,250 ($3,000 + $2,000)*(45%)

Then we can factor back in how many leads convert to a deal and word-of-mouth gains:

  • Lifetime profit-per-customer: $2,250
  • Leads that convert to a deal: 20%
  • Gain from word-of-mouth: 15%
  • Lifetime value-per-conversion: $517.50 ($2,250 * 20% * 115%)

There are other factors that can be added, but each business is different so it’s hard to generalise. What’s important is for you to know what the true value is so that you’re not cutting your marketing opportunities short and missing out on profitable market gain.

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