- Lead Value = Value of Sale / Number of Leads.
- Lead Value = Average Sale x Conversion Rate.
You can assess the profitability of your marketing campaigns by measuring the value of your leads. You have a problem if you spend more money acquiring leads than they generate. In addition, lead value can be a fantastic optimization indicator. The value of traffic from various sources (paid, social, etc.) can be determined. ) and assess whether some channels produce more valuable leads than others. By improving the user experience on your website, you may increase conversions and lead value. .
You can assess the profitability of your marketing campaigns by measuring the value of your leads. You have a problem if you spend more money acquiring leads than they generate. In addition, lead value can be a fantastic optimization indicator. The value of traffic from various sources (paid, social, etc.) can be determined. ) and assess whether some channels produce more valuable leads than others. By improving the user experience on your website, you may increase conversions and lead value. .
How to calculate average lead value
Why is lead value important?
Lead value is crucial because it can aid in policy selection, sales forecasting, and customer acquisition efforts. Lead value is crucial for understanding the maximum value a customer can provide over the course of a lifetime of purchases, not just for one-time purchases. It’s also a potential method for determining a customer’s return on investment (ROI). Businesses can forecast sales and develop marketing strategies using customer ROI.
What is lead value?
The potential value that each potential customer has for a company is known as lead value. A customer’s lifetime worth of potential purchases is represented by lead value. Anyone who engages with the products being offered is a lead. You can use lead value to help you make financially responsible business decisions, such as how to attract more leads into a company and potentially boost sales.
How to calculate lead value
There are several formulas you can use to calculate lead value, including:
1. Calculate lead value as the total of sales divided by the total number of leads
The total of sales in this formula refers to the total dollar amount a business has earned over a specific time period. The number of people who learned about the company during that time period is the total number of leads. You can determine the value of a single lead by using this method of calculating lead value. Initially, divide the total dollar amount of sales by the total number of leads. For example:
The lead value of each client in the aforementioned example, 200, is for a specific period of time.
2. Calculate conversion rate as converted leads divided by the total number of leads
The conversion rate measures how quickly leads become paying customers. Making this calculation can be crucial for strategizing marketing campaigns and attracting new demographics. The total number of leads is the total number of people who saw the products during the period, and the converted leads are the number of leads who converted into paying customers during that period. For instance, if you had 50 leads but only 10 of them converted into sales, you could calculate the conversion rate as follows:
3. Calculate lead value as the average sale multiplied by the conversion rate
This method of calculating lead value takes into account the precise number of recent customer conversions. The average sale in this formula is the sum a single customer spends over time. The average sale, for instance, would be $200 if you made $10,000 and had 50 customers. Using the previous figure, if you had 50 customers but 100 leads, your conversion rate would be 50%, or one out of every two. As a formula, you can represent this as:
4. Make a projection by finding the total leads needed as sales goal divided by lead value
You can estimate how much money you can make using the lead value. Consider that you want to earn $20,000 and that your lead value is $200. If you apply the formula, you’ll see that you’ll need 100 leads during a particular time frame:
Knowing you need 100 leads, you can market more successfully to attract more customers.
Methods to track lead value
Marketing can be used to track leads and their worth. You can track leads using some of the most popular methods, such as:
Tracking referrals and recommendations
You can determine the potential number of leads a business may receive by tracking referrals. You can calculate lead value by knowing this number rather than having to remember how many people visit. You can possibly increase sales by developing strategies for marketing to a larger audience with the aid of tracking referrals.
Conducting surveys
You can use surveys to determine whether people will return and other methods of public marketing. There are a few different surveys you can use:
Using a logbook
You can track lead value by having customers sign a logbook, which gives you an accurate count of visitors to the store regardless of whether they made a purchase. A logbook placed near a business’s entrance encourages customers to leave notes and occasionally the amount they spent. Logbooks can also reveal how many customers would refer the company to others.
Examples of lead value
Three examples of how to use lead value are provided below:
Example one
A popular clothing store makes $13,000 in a single day. That same day, they had 13 leads. They choose to calculate the lead value using the first method, and they find that each lead was worth $1,000. Using this information, management determines they want to start earning $20,000 per day in two months. They calculate their lead value by dividing their desired sales, $20,000, by their lead value, $1,000, and discover that they will need to generate 20 leads per day to reach their goal. The following month, they run advertisements and gain an additional seven clients each day. They have attained their daily sales objective by the end of the second month.
Example two
A well-known, upscale art gallery decides to launch an online marketing campaign and wants to assess the worth of its leads. Their conversion rate is three out of ten, or 30%, so they decide to use the second method of calculating lead value. Last month, they made $150,000 and about 300 customers. By dividing their average sale of $150,000 by 300, they arrive at the figure of $500. They discover that their lead value is $500 X 0 using these values. 3 = $150. They choose to pursue alternative marketing campaigns after weighing the cost of the new campaign.
Example three
Around $500 in sales are generated daily by a small local business. They discover after a few weeks that their daily sales are consistently around $500 but would like to reach $1,000. They choose to employ the first technique for determining the lead value in order to determine the quantity of leads they require. They have 20 leads every day. They divide $500 by 20 leads to arrive at a lead value of $25 each. With this lead value, they make the decision to calculate the number of leads necessary to generate $1,000 per day. They divide their $1,000 sales target by the $25 lead value they received, yielding 40 leads. After giving it some thought, they change their daily sales target to $750.
