034. Lead Generation KPIs Every Marketing & Sales Team Should Track

Hello everyone, this is Emilio Garcia. Welcome to another episode of Demand Gen Studio. And today we are going to have a conversation about lead generation KPIs that every marketing and sales team should track. I'm really happy to have the opportunity to get to talk to you again. Again it's been during the summer a little bit not consistent with our episodes. I feel very confident now however that with the team we had come up with a schedule to prepare these events ahead of time so we can continue our intended cadence of an event every other week. So hopefully we will get back to normal on that. So a very interesting topic today. Lead generation in general, as you know, is part of, you know, every demand generation program and is something that is the initial step, I'll say from, you know, a more comprehensive demand generation effort. And usually some marketers wonder what are the KPIs that I should track and how do you improve them? So today we will cover that very briefly. KPI's means, for those of you that are not aware of it, the meaning is key performance indicators and usually they are used to measure the success of individual or a team. One key aspect or something that happens is that you can have very little or very few of them but more often than no, you have too many. And, and that's, that's what we will intend to cover here today. So in the, in the case of lead generation, I want to start from, you know, far away and move along into other areas as we move through the pipeline. So I will try to cover in that, in that sequence. So the first one we will start with a great KPI for lead generation is conversion rates. And therefore these stresses out something that is quite important from the beginning, which is that you need to have some sort of tracking of your actions or performance usually on a paid media campaign for demand generation programs. So if you have that search ad or that social media ads and you are just tracking clicks, you're going to be in trouble because there's no easy way to know which of all those keywords and or audiences that you're tracking are performing better than others. So having a conversion rate as a KPI is a great start. And usually the way that you define it is that you divide the number of what is called conversions by the number of visitors or sessions that you have at your website coming from that channel. It's that simple. Sometimes what is a little bit challenging though is defining that conversion. What it is. Usually I like to have a hard conversion, something that is very clear what it means and that has Some business impact like for example someone fill in a form or starting a call conversation for the first time, not a repeated caller or starting a chat conversation for the first time or any action that creates a contact or a lead on a database. That is my preferred measure of conversion. However, you can have some others, especially if you are building brand awareness efforts or just consideration efforts. Some other micro conversions or metrics related to actions that show engagement, right? So it can be number of pages visit on a session, it can be number of repeated visits during a time frame, right? Or just time on site or scrolling through pages and stuff like that. Those are also conversion rate metrics that you can use. But again they're softer and it's easier to confuse progress on those with real ones like a hard conversion. So conversion rate is one of the easiest, the fastest ones that you can start measuring and one that definitely I recommend you start measuring from the get go on your lead gen programs. Now the next one will be the cost per lead. Now this is a slight variation on that one which is if you have, if you, if you are measuring those leads in the form of contacts coming through a form or phone calls or emails being sent, then you want to assign a cost to them. And the fastest way to measure that is that you take the spending. And usually this make a lot of sense when you're doing advertising especially versus other kinds of efforts where you have to add up the time of the people plus any tools that you have is not so easy. But in advertising is quite simple. You take the advertising spend and divide it and all the leads that you have and divide that by the advertising spent on that time frame period. And that way you have your cost per lead. One of the the first things that you will discover when you start measuring this is that maybe internally you don't have a definition of how much do you want your leads to cost. Right? And that is the reason this KPI is very important, because you start bringing up those questions. I have discovered that for most B2B businesses or companies, while they care about the cost per lead, they are sometimes are insensible to changes on it in a way that do not apply to B2C or E commerce endeavors. Where you know usually the cost is more about the acquisition cost, the total acquisition cost at the end where you already know how much it costs you to bring someone purchasing a product on the website. Here on the leads, if a lead cost, I don't know, $100 versus $200 for example, as long as the potential project or the Potential customer is worth a lot like tens of thousands of dollars, then most clients or most B2B companies are going to be to some extent insensible to that cost. But they want to know it so they can assign an expectation of value. So the first thing that you will discover once you start tracking that cost per lead is, is that sometimes you will have great conversion rates, but your cost per lead can be higher or lower depending on the cost per click or per action that you're paying for that ad platform, for example, so interesting to track and important, very related to that one is once you have the cost per lead, then usually if you are able to save all those leads into a database, ideally a CRM platform, and follow up through the sales process to discover how many leads do you need to get a sell, then you will be able to get back and say, well, now I'm able to judge the value of the lead, which is the next step on those KPIs that you want to measure. Because at the end of the day, the cost of the lead is just important in reference or in comparison to the value that the lead is bringing. Right? So as soon as you can get those numbers or make assumptions about them. Right. Usually the other way that you can do that is that you can assume or suppose a conversion rate between leads and customers. You use that and assign the lead value. And the other thing that you will discover, usually KPI that can be used for measuring the lead quality is the ratio between the, what is called MQLs, the marketing qualified leads that you get from those forms and the SQLs or sales qualified leads, which are the leads that sales or the SCR end up accepting. Right? So these are two great KPIs that allow marketing to connect with the rest of the company, especially with sales, and start a conversation around the understanding are we bringing value and are we doing an effective cost or an effective return? Right. So lead value and lead quality are great KPIs that you can start using for measuring the impact that your demand generation or lead generation campaigns are having on the business. Now following along that, when you have the ability to measure the cost of the leads and also you have the ability to estimate or measure the value that the leads bring and you considering to that the ratio of quality leads that you're actually getting, then you will be able to measure something that is specific to advertising, which is return on ad spend. Right? It's just the ad spend, it's not total return. But the idea is I take all the leads that I have been able to bring and their average value and divide that by the spending of my advertising efforts. And so that way you have a return. Right? So this is usually what most people try to gauge from their advertising efforts. They want to know if out of every dollar that they are spending, if they at least are getting that dollar back in revenue for their business, which is obviously a good goal to have, especially when your campaigns are performance based. The only area where usually that will not be a good measure of success will be for brand awareness efforts. Unless you're willing to measure for a very long time and be flexible on the attribution. But for more conversion oriented campaigns or capturing demand campaigns, it makes total sense to measure it in those terms. The return ad spend now really going up or continue to go in that pad of the pipeline that we are the KPIs that we're using. Then you have the customer acquisition cost very similar to the cost per lead. And, and this one is after you have been able to follow up the process, then you take how many new customers have you bring during a timeframe. This one is going to take a long time. Unless you have, you know, a massive budget or you have a kind of business where you have a decent amount or volume of leads and a very high conversion rate from leads to customers, then you will be able to have that customer acquisition cost which is the number of clients divided by the ad spend, right? And again here you will be amazed or surprised about the difference that it makes from measuring that conversion rate versus the cost per lead. You will see some differences there because of the cost per click or the cost per interaction. There are some areas where you will have a great engagement rate but but the keyword or the audience is quite expensive. So your cost per lead will increase. But the same happens for cost of acquisition. You can deceive if you're just measuring cost per lead that some campaigns or efforts will have a lot of leads, but they will have so low quality that you will convert into customers a very small fraction of them. So your cost of acquisition or cost of customer acquisition will be very high. And that is the reason you want to have this KPI as soon as possible, right? You start with cost per lead or conversion rate, but as soon as you can then you should move on or add to the mix. Customer acquisition cost very related to that in a way that you know is continuing with the idea that while is not the whole goal and for some campaigns or some marketing efforts, revenue and return on investment is not necessarily something that can be Tied directly, but only indirectly. At the end of the day, the marketing efforts have to in some sense contribute or have some attribution to revenue. So you want to measure revenue and return on investment. This one is the total return on investment, right? So the best way to measure that when you have a mix of channels is that you benchmark or track the revenue that you have at any given moment, point in time that you start your effort and then you over time continue to measure that revenue and compare it to the cost of all the marketing activities that you have. And you should have an impact. For some channels will be quite easy to make the attribution directly to the channel from some others, you will have to be content with the fact that you are impacting it, while you will not be able to tell the whole story. A typical example that I use is these kinds of events, right? If I try to make attribution to our live events or the content that we put out there, some of some of it is very challenging to measure because there's not Google attribution tools for podcasts, for example, not as good as you have for search ads campaigns. So in those cases, it's not that you are not measuring, is more about trusting that those activities eventually lead to revenue and that they will impact their bottom line at some point in time. It's just that you will not be able to tell the whole story as neatly as you could on some other channels. But you want to be mindful of your revenue and definitely compare the total marketing investment. And sometimes the sales expenses are included there, right? So it's not just your ad spend, it's also the marketing tools that you're using. It's also the people or the agencies that are helping you to accomplish those efforts. And then you use all that investment and compare it to the added revenue that your business has bring. And usually this is a very long period of time. So we are talking about here at least a year and usually we are talking about, you know, two or three years to make a meaningful comparison because most of these efforts will yield the results over long periods of time. Even when at the beginning you have a proxy for performance on those conversion rates and lead per cost per lead and cost of acquisition. Now, in a similar way, continuing with, you know, moving on, one of the challenges that you have to just taking the cost of acquisition for customers is that for some companies or businesses, acquiring that first customer is just the beginning and not the end of their relationship, right? So usually either you have a subscription model for your product or service or if you don't have one, you have a process in place to make sure that that client have a great experience with you and then come back. And the next time that they need the same product or service, they will think of you first rather than your competition or, and, or you establish some specific efforts to be in front of them and to remind them that you are there for the next time they need the service. So the best way to capture that is through customer lifetime value. And this is important because for some demand generation efforts, if you only compare the added revenue of that time frame against the investment that you did on that time frame, right. That Roy, you might come short, you might discover that you are getting just $1 per dollar investment and say well, this is not really adding extra value to the company, but it's just because you haven't measured the total value of the customer, right? So if you have a process where eventually a client will keep buying from you for the next three, four or five years, then your total value reality an order of magnitude higher than you're usually measuring. So this is another KPI that you want to establish over time. And again it will take time even if you are not doing any demand generation or lead generation efforts because you will need time to measure those numbers and the way that you calculate that customer success. While I will not show up the formula here, but give you an idea, right? And this is just averages of numbers. You take the average purchase side of each customer because probably you will have very different products and services. Sometimes you can customize it or, or categorized to some specific product lines or categories of services that you have, but the average cost of those services. And then you need to consider the number of purchases that a client will do over the year. And on top of that you add the profit margin, right? Because the average car, the average revenue, that's, that's what they are paying, but not necessarily the profit that you are making. So the total value or the customer lifetime value will be the multiplication, those three parameters, right? The average size of the purchase, the number of time they buy over a year, or if you are measuring over a lengthier time frame, you can use that in your calculations and finally your profit margins. So that will give you the final KPI that I definitely think you need to use and as a kind of a summary. Now you can see the progression here, right? It's not that the first are important or more important than the last. It will be more about usually when you are starting a demand gen program or a lead generation program. Some of those numbers have not been calculated yet. So my recommendation will be to start with the lower end, which is easier to calculate and start building the implementation blocks so you can measure the rest and eventually have the full picture. Right? So you start with conversion rate, cost per lead, return, ad spend, cost of acquisition, and eventually return on investment and customer life value. Now obviously I have shared some of the more important KPIs that at least I consider every marketing and sales team tool track. But how do you go around to improve them? Right? So while that probably will be a whole episode out of itself, here are some quick ideas on a very simple process that you can use to do that. So you have, I have to divide it into steps. I will consider six of them. The first will be to build that pipeline, right? So really build the systems. Usually you will need a CRM or a system of record where you can store the information. It can be done I guess in Excel spreadsheet, but nowadays there's no need. There's so many systems available that you can use any of them for free and set it up that way. So build your pipeline so you can track where do you get the leads and what happened to them and how they continue to bring revenue or value to your company over time. Second step will be you establish a baseline, right? Because at the beginning you don't have any reference points. So for the first KPIs, for the ones that are closer to, you know, brand awareness, engagement, you might be able to get those numbers right away once you start the program. But for the ones that at the bottom, if you have never done this before, probably you will need to use estimates based on standards. And I think that's a great use of those numbers. But I will, I will recommend against using them as your benchmark, like a hardline benchmark. I believe those standards are great for reference, but at the end of the day, what matters are your numbers and that you improve upon those numbers over time, not what other companies are having. Because your situation or the, your company, you know, business model is unique in that sense. So you establish that baseline. And when you establish it, usually you will discover patterns, right? So you will start seeing that some channels, some industry sectors, some company sizes, some locations have better performance or worse performance than your baseline that your, your averages. And that's when you start looking for opportunities. That will be the third step, right? You start looking for opportunities in form of those channels that are performing better. Can we put more investment on them? And those channels or those industries that are not Performing as well. Is there something that we can do to change that? Or we should just minimize the investment that we have on them. It's not different from, I joke about it, but from a portfolio point of view where you lay heavily on the ones that are working well for you rather than focus on the ones that are not performing better. So you look for those opportunities and start making adjustment which will be the four step. You start creating experiments, right? So the hypothesis is that this channel is performing better and if I put some more money into it, I will consistently have the same performance, at least for a time. So you start building some experiments all across the pipeline, right? And you start measuring those improvements. That will be the fifth step, right? So you create experiments and start measuring the improvement that they should happen. If they don't, then you don't go that route and try something else. If it works, you add it or establish it permanently for your channels or for whatever step on the funnel or pipeline that you're moving. And you continue to do that. That will be the sixth step. You continue to do that recurrently as part of the program, right? So that's the way that you can improve those lead generation results. You build your pipeline which is establishing those system of record that will be able, that will allow you to measure those KPIs. With that, you either establish a baseline of your own or make estimates at the beginning as a replacement for them. How? While you wait for the for the baseline to be built, you look for opportunities on the channels or areas or industries or company sizes are performing the better. You make experiments to prove that effectively you have an opportunity there, measure the results and then repeat. And that's an easy way to go there. So that's all that I have for today. I hope you have found value in this conversation and don't miss the next one. Get notified. Visit Demand Gen Studio at our website to get notified to our next event. And until then, I hope you have a great day. Bye bye.