Credit: Matthew Hollister

Last year direct-mail leads cost Dial One Windows $550 per lead, or 35% of the revenue the Orange County, Calif., company generated from that source. Internet leads, mostly pay per click, cost the company 10%. Leads generated by magazine ads had a 31% marketing cost. Those direct-mail and magazine ads seem expensive, but for the moment, owner Charles Gindele has no intention of getting rid of them.

Cost of Leads Vs. Cost of Sale

Leads are the lifeblood of a business, and a healthy lead flow is diverse, that is, generated by many different sources. At Dial One, for instance, it consists of “60 to 70 line items on a spreadsheet,” Gindele says. A key criterion for what makes a lead source a good one is cost.

But cost isn’t the only factor. For instance, your marketing manager could be bringing in a ton of leads from one particular source. But “if they’re bringing you the wrong clientele,” says industry sales and marketing consultant Dennis Schaefer, “all you’re doing is spending a ton of money on wasted opportunities.”

It’s not just the lead cost, Schaefer says, but the percentage of leads that convert to appointments and finally to sales. More important than lead cost, he points out, is the cost of the sale, or how many leads it takes to create revenue. If leads from one source cost just $50, compared with an averaged lead cost of $250 at your company, that seems like a great thing. But what if you close only 5% of them? Then the cost of the sale is $1,000.

Beyond that, Schaefer says, you’ve sent your salespeople off on any number of low-quality appointments when they could have been spending their time running leads that close at 30% or higher.

Best Customers & More of Them

Then there’s converting leads to appointments. If mishandled on the phone, leads convert at a lower rate, and so the cost of the sale goes up. Why? “The more appointments you have, the more sales you make,” Gindele says. If salespeople pick and choose which appointments to go on, again the cost of the sale rises because it takes that many more leads to result in a sale.

In the meantime, what about those lead sources at Dial One that come in at 31% and 35%, respectively? They’re there, Gindele says, because “I need customers who have never been customers, so they become previous customers.” Since half of Dial One’s business comes from referrals or repeat customers, Gindele says that he needs to always be reaching out and adding customers who are new to the company. The marketing cost for business generated by re-contacting past customers last year was 4.93%. —Jim Cory, editor, REPLACEMENT CONTRACTOR.