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Calculating The Value Of A Lead? (10)

02-28-2014 02:28 PM #1 olimits7 (Member)
Calculating The Value Of A Lead?

Hi,

I'm working with an affiliate network, and I have an offer where I'm paying $1.50 per lead (e.g. newsletter signup, registered user). These are just leads, so they're not actual customers bringing in revenue yet, but I'm having a hard time calculating how much these leads are to my business.

I am getting lead conversions through this; which is good, but at what cost? What if these leads never convert over to customers that bring in revenue? Then I'm just burning through my advertising budget for worthless leads.

Does anyone know a formula I can use to determine if the cost I'm paying for these leads is worth me continuing to work with this affiliate? Or any website that has a tutorial on determining the value of a lead?

Thank you!

02-28-2014 03:38 PM #2 bbrock32 (Administrator)

The only way to figure this out is to send some traffic first, let the leads mature and come out with an average lead value ( total rev / leads ).

To get some traffic you can either buy traffic internally or what you are doing.

So maybe spend $2k let's say with the affiliate network , wait 1-2 months to see how much you can squeeze out of a lead and re-start again with a much more accurate lead value.

02-28-2014 03:45 PM #3 olimits7 (Member)

Thanks for the reply!

Ok, this makes sense...thank you!

So during the 1-2 month period; I could do some email marketing to these leads and see how many convert to actual customers / revenue then use this data for future affiliate network campaigns?

02-28-2014 05:11 PM #4 cmdeal (Veteran Member)

The formula is: GP (gross profit) per conversion / reciprocal of lead CVR > CPL

02-28-2014 05:35 PM #5 bbrock32 (Administrator)

Quote Originally Posted by olimits7 View Post
Thanks for the reply!

Ok, this makes sense...thank you!

So during the 1-2 month period; I could do some email marketing to these leads and see how many convert to actual customers / revenue then use this data for future affiliate network campaigns?
Yes exactly, during those months find out how much you can squeeze out per each lead, decide your margin and pay the aff network the value per lead - your margin.

02-28-2014 05:48 PM #6 olimits7 (Member)

Quote Originally Posted by cmdeal View Post
The formula is: GP per conversion/lead CVR > CPL
Can you provide a simple value example of this formula?

GP = Gross Profit?

02-28-2014 05:58 PM #7 cmdeal (Veteran Member)

GP is gross profit

Your Profit per lead (PPL) has to be > your Cost per lead (CPL)

Profit per lead PPL = Gross Profit (GP) per conversion / Reciprocal of lead conversion rate (LCVR)

by substitution

GP per conversion / Reciprocal of lead conversion rate needs to be > Cost per lead

from the formula you can see that the amount you can afford to pay per lead has a direct relationship to how much profit you get for a conversion and the % of leads you can convert to a sale.

02-28-2014 06:09 PM #8 cmdeal (Veteran Member)

So suppose you are selling a pencil for $1 and it costs you $.50 to produce. You gross profit is $.50 per conversion.

Now suppose you are paying $.10 per lead.

That means you will need 20% of the leads or higher to convert in order for this to back out for you.

02-28-2014 06:52 PM #9 olimits7 (Member)

Ok, thank you...this definitely helps!

03-01-2014 04:09 AM #10 zeno (Administrator)

Yah it's up to you to do a test and evaluate the customer lifetime value - which might take months to assess. Like Stackman said, budget out a test and see how it goes.

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