Friday, March 13, 2009

ROI for Lead Generation Websites

On the last post we discussed return on investment (ROI) in general, for marketing projects. We’ve been asked how to measure ROI for lead generation (lead gen) Websites. The thinking here is the ecommerce Websites can easily be measured because someone is purchasing something and the cost and profit are clear. With lead gen sites it can’t be done because someone is not purchasing something online.

Lead gen sites and projects can be measured but you need extra information. First, you need to know the number of leads that Website (or all Internet activities) produces. Many people jus look at the leads from “Contact Us” forms but that’s not looking at the entire picture.

So, what else can you look at regarding leads from the Internet? Any other activity on the Internet can produce a lead. If you have PPC campaigns going on you can trace leads to landing pages which should have a form on it. In addition, you can have a service that offers a variety of phone numbers that all go into your main phone line but are traced back to the PPC campaign ad (we offer such a program). Leads from article marketing, videos, Web conferences, BLOGs, etc can all produce leads. How to trace it back is a topic for another post or White paper.

If you want to measure just one project such as your PPC campaign then you just count the leads from that activity. If you want to know overall how your entire Internet marketing strategy is working you need to track all of your activity.

Now that you are tracing all you leads, the next thing you need to know is how many on average, are qualified leads? Of course this number is going to go up and down each month. With each campaign you should test and monitor it for targeted leads. After a few months you should have an average number for qualified leads.

Now that you know how many qualified leads your project is producing, you need to know your average close ratio. As a sales manager or marketing director you should know the sales ratio for each sales rep and overall for the company or division. In some cases Internet leads are only distributed to a select group of sales reps so you just want to know that group’s close ratio and not the entire company’s sales ratio.

Now that you have these numbers you can determine your ROI.

Here’s an example. Let’s say all your Internet marketing projects cost $110,000.00. Your average sales price is $50,000.00. Your Internet activities produce on average, 200 leads per month. Of those 200 leads let’s be very conservative and say only 20% of them are really qualified leads (Someone ready, willing and able to purchase is going to be our standard or definition of qualified lead. You definition may be different.) That means the site is producing on average per month 40 qualified prospects.

Now, let’s say these qualified prospects are funneled to the sales reps and their close ratio is 20%. That means that 8 of the 40 prospects will convert into a sale each month. That means the Internet is producing $400,000.00 in sales per month ($50,000.00 avg. sales price X 8 avg. sales per month). Now take the $400,000.00 per month and multiple by 12 to get your yearly revenue which will be $4,800,000.00 in revenue.

However $4,800,000.00 is only revenue and you want ROI. As a business owner I want to know my gross net profit. So let’s subtract out your expenses and the expenses of the Internet project and you’ll have your ROI. Also, keep in mind that ROI is not just for one year so you need to look at the cost compared to the return over a given time frame.

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