How much budget should I allocate to lead generation?
Deciding how best to allocate a marketing budget can be tricky and there is no easy answer – regardless of whether your budget is £1,000 or £1,000,000. Here are some issues to consider:
What are you hoping to achieve?
Are you looking to generate leads, make sales or simply to push brand awareness?
If you’re a new business, a majority of your money and effort will probably be focused on branding – getting your name in front of potential customers and building a presence, both online and offline. If you’re already well established, you’re likely to be spending less on branding and more on lead generation and sales.
How quickly are you looking to reach your targets?
If you’re looking to see results quickly, you’ll need to allocate more so you can push your marketing harder – you’ve got to ‘spend money to make money’ as the saying goes.
A CMO study suggests companies spend around 7% of their annual revenue (11% of their firm budget) on marketing, though this varies with both size and area of business. Construction companies spend only 2% of their annual revenue on marketing, rising to 18.5% within the education industry.
One of the most cost-effective channels is content marketing, so it’s easy to see why it forms the cornerstone of most online marketing campaigns. If you’re looking for tips and tricks on making it work, see our blog: how to effectively budget for your content marketing.
When allocating budgets, always focus on the expected return on investment (ROI). Whilst this is easier said than done, especially as some channels take longer to gain traction than others, as long as you have a data-driven reason to expect a return, then the sky’s the limit.
If you’re just starting out, try targeting one or two channels and give them time to kick in before moving on to the next. Spreading resources too thinly straight off the bat can be a recipe for disaster. Choose the channels which will provide the most value for your business. Once you start seeing a return, add one or two more channels at a time and repeat the process.
How should you measure lead generation?
Effective lead generation is anything but cheap, so how do you go about measuring your return on investment? What metrics are most important to track?
Firstly, you’ll need to track how much traffic you’re drawing in, and how much of this traffic is relevant to you. There are several good tools available, with Google Analytics being one of the most widely used and most comprehensive. Plus, it’s free to use and only requires a small snippet of code to be inserted into the header of your site.
The quality of the traffic you’re generating is one of the most important metrics you need to look at when analyzing your lead generation. You may be achieving big numbers, but if no one is converting then it will be for nothing. Also consider, at what point will you consider your lead generation successful?
The whole point of lead generation is to generate leads. Searchengineland states the average conversion rate of a landing page to be 2.35%, so if you’re hitting that number you may think everything is good. But unfortunately, it’s not that simple.
If you treat the number of leads generated as your sole measure of success, you’re likely to get a skewed picture of how well your campaigns are performing. Of those leads, how many went on to become marketing qualified? Or sales qualified? And how many actually bought from you?
It’s important to measure the sales funnel as a whole, looking at the bigger picture rather than each section in isolation. By examining long term trends, you will be able to work out how many people have converted and what revenue has been earned from these conversions. If you then work out the full amount you’ve spent on getting these conversions (including any software and staff wages), you can simply divide the profit by the investment made, then multiply this by 100 to work out your ROI.
But that isn’t the end of the process. There are several other important factors to consider. Rather than just measuring lead generation performance as a whole, it’s important to measure on a channel-by-channel basis, to find the areas which are performing best and generating the highest return.
One common mistake here is to use a last-click model that attributes a lead entirely to the channel they finally converted on. Whilst this is tempting, as it keeps reporting clean and tidy, it will give you a grossly inaccurate picture of how things are performing.
Some channels are vital for capturing leads, but will rarely result in direct signups. They will appear to have a huge cost for very little return, when in reality cutting them out would be massively detrimental to your success overall.
So how do you go about accurately attributing leads? There are several attribution models which can help to do this, each of which has its own uses.
The linear model distributes credit for a conversion equally across all channels that have played a part – for example if someone found the site via social media, then visited again via paid search, then came back later through organic search and finally converted after typing the URL directly, 25% of the conversion value would be attributed to each of the social, organic, paid and direct channels.
You can learn more about other attribution types and their uses here.
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