Return on Investment (ROI) shows how successful your campaigns are by comparing expenses with revenues. Therefore, the metric is a valuable tool to prove how effective your marketing campaigns are.
In addition, these figures are a good way to compare different campaigns with each other and compete with each other. We will show you how to calculate your ROI and why it is crucial for lead generation.
The calculation of the return on investment is composed as follows
By means of the ROI you can Effectiveness of your campaigns to Lead generation very easily. Let's take a simple example. Let's say you spent a total of 4,000 euros on a campaign. This is not a small budget and should be economically profitable for you. So if you invest the 4,000 euros for the campaign and generate leads in return, however, which bring your company revenues totaling 20,000 euros, then the campaign has paid off for your company in any case.
But the values cannot be determined so simply. The ROI must also be calculated and put into perspective. Various factors play an important role here. One of the factors is the Customer Lifetime Value. Understanding this and its value is essential for companies.
Customer lifetime value - basis of calculation
Customer lifetime value is the basis of every calculation. So the revenue generated by a customer until the customer is no longer a customer of the company. Various data and also empirical values are required for this. Young companies in particular can often only rely on available statistics, as they have no experience of their own.
The situation is different for service providers where customers sign longer-term service contracts, such as telephone companies.
If a new customer is acquired here, you can assume that he or she will be bound to you for at least the contract period of 24 months. However, statistics show that such customers usually stay with a provider for an average of 5 years. If we now assume a monthly price of 20 euros for the telephone package, your customer will pay a total cost of 60 x 20 euros in the course of his contact with you. The customer therefore has a CLV value of 1,200 euros.
This calculation is very inaccurate because, among other things, factors such as labor costs, the time value of money and other elements are not taken into account, but this plays only a minor role at this point.
With this CLV value, you have created the basis to determine the ROI of your lead generation and to compare it with other campaigns.
In order for this to be possible, however, we still have to Include costs of customer acquisition.
Calculate the cost of customer acquisition
The cost of customer acquisition, often abbreviated as COCA, is the cost you are willing to spend to acquire a new customer. Young companies often allocate an amount of up to 20 percent to customer acquisition, while existing and appropriately successful companies usually choose a value of 10 percent. This means that young companies would spend up to 240 euros per new customer out of the 1,200 euros CLV, and existing companies up to 120 euros.
However, since the Marketing budget is not only used for lead generation, a percentage of this must be used for the calculation. Lead generation must be designed in such a way that it successfully covers the entire marketing budget, even though it is only a percentage of the total budget.
Another example: The telephone company from above invests an amount of 24,000 annually in marketing. 2,400 euros of this goes into pure lead generation. So you would only have to generate 21 new customers with lead generation to achieve a positive ROI. Because 20 customers a 1,200 euro income result in the budget of 24,000 euros for your marketing.
Assemble basic preliminary considerations and check ROI
We have now covered all the important and relevant figures and their calculation. But now we come to the exciting part. Now we use exactly these numbers to determine your ROI for lead generation.
1. determine the total marketing budget of your company.
2. calculate the share of the total budget for lead generation.
3. the cost of customer acquisition should be 10 or 20 percent of CLV
4. divide the lead generation budget by the COCA value.
As soon as your lead generation campaign ensures a positive ROI, it is already a success. But the level of value can be used, among other things, to compare different campaigns with each other. Customer lifetime value in particular plays a significant role here. In many companies, this can mean that the necessary statistical surveys must first be carried out in order to calculate precisely these values.
Thanks to digital technology and Big Data, most companies can determine these values quickly and reliably for the various product and customer groups
Conclusion: Calculating the ROI of lead generation on a regular basis is important
Yes, it may still seem complicated at second glance to regularly calculate the return on investment for each lead generation campaign, but we can only advise you to do so. Because this is the only way to avoid investing your valuable marketing budget in poorly performing campaigns without getting a return on qualified leads to be obtained.
The better the ROI of the campaign, the more your company will benefit from the measures taken.
Regular controls also ensure that you can modify or sharpen individual campaigns as needed to even better match your Target group and to reach them more effectively. In any case, it is an effort that every company should make. And yes, we also know that our calculation does not include many elements, such as labor costs, among others, but to compare different campaigns and compare effectiveness, this simple ROI calculation of lead generation can be optimally applied.