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.

Increasing your Internet ROI

Last Thursday I was asked to be on a panel discussion at the BMA luncheon meeting talking about how to increase ROI from your Website. It was a great presentation and I had a lot of fun doing it. Members from the association said that it was one of the best events that they had in some time. I’m still getting emails and calls from the luncheon asking for additional information, so I thought we would address some topics on our BLOG.

First, let’s talk about what ROI actually means. It seems like lately it’s a term that a lot of people are tossing around lately without knowing the definition. Many people just use the term to mean a generally that their projects or Website is successful. But measuring success is critical.

This is an area that separates a lot of marketing professionals, especially those involved with Internet marketing. We discuss this issue with our clients and they’re well aware of ROI and what it means. Also, keep in mind if you’re talking to a financial person the term and calculation is a bit different compared to marketers.

ROI is Return on Investment. It is the return over time that you will receive on your initial investment.

We tell our clients that they should expect a 3:1 ROI ratio with our projects. What does that mean? It means that for every dollar they spend with us that they receive three dollars in return in profit. Most receive a return much higher than that. However, that means AFTER they get their initial investment back. You also have to keep in mind that the investment should yield profit over time.

For what ever project you undertake you need to look at the return to see if it’s worth doing or if you would be better off investing the money is another way.

Some of the discussion talked about ROI on an ecommerce site VS a lead generation sites. You can and should measure ROI for both types of Web projects. Our next post will discuss how to measure ROI for a lead generation Website.