Computing The Value Of Your Lead Gen Conversions - Pt 1 Of 2

May 30, 2006
By Robbin Steif

Apologies to subscribers – I had to change the name of this post twice and it was probably pushed through to you in your feeds. In any case, if you want to read Part II of this post, you can find it here.

Maybe you aren’t doing e-commerce. But your leads are worth money, right? So figure out how much and tell your web analytics — that will enable you to compute your return on your paid ad campaigns, banner ads, and anywhere else you pay for traffic.

Here’s how you do it, and let’s start with the easiest example: visitors only have one way to convert into leads. Let’s assume that they convert when they fill out a “Contact Us” form. So, sit down with your last 1000 completed “Contact Us” forms, compute how many of those turned into paying customers, and what an average converted lead was worth. To keep the example easy, let’s assume that when the visitor converted into a paying customer, they either license your $50,000 software or the souped-up version that costs $75,000. Three of the 1000 “contact us” leads purchased, of which two bought the less expensive version and one bought the more expensive version. So your average converted lead is worth (50K+50K+75K)/3=$58,333 Now, spread it over 1000 leads —
$58,333/1000 = $58.33. There you go — a lead is worth 58 bucks. (It’s not worth getting too precise when you don’t have much data – you should re-evaluate every month as you get more data.)

This gets a little more interesting when there are multiple ways to convert (they can sign up for an e-newsletter, download a demo, attend a webinar.) If everyone only did one of those conversion methods, you could just follow the instructions above and compute the value of an e-newsletter sign-up, the value of a webinar registration, etc. But the truth is probably muddier and most visitors who convert probably sign-up for more than one option, especially if the end result is a $50K purchase. There are many ways you could do this, but I always like to keep things really, really simple when you are guesstimating anyway. So I recommend that for starters, you consider each conversion to be an equivalent event, and then count by the events.

For example, let’s assume that the customer who made the $75K purchase signed up for all three events (e-newsletter, webinar and download.) The first $50K purchaser only signed up for the download, and the second $50K purchaser signed up for both the e-newsletter and the download. So that’s six events spread over $175,000 of transactions, or $175,000/6= $29K per conversion event that turned into a customer. Now you can spread that over all the 1000 individuals who took action on your site (whether they bought the software or not, since our real goal is to put a value on each software download, each webinar registration, etc.) Let’s assume that the 1000 “action-takers” actually completed two events, for 2000 total events. That makes each event worth $29K/2000 = $14 and change. So each of the three events (webinar, e-mail, download) is worth between $14 and $15.

Doing the analysis this way makes sure that you don’t doublecount the different conversion events and inflate their value. (You can also weight the events based on how often they occur with a conversion, but that has to wait for a different post.)

Don’t forget to put the value of the conversion into your web analytics package (if it accepts it.) If you are using the free conversion package that Google gives you with AdWords, you will definitely have a place to include this value and compute ROI. Google Analytics also gives you this capability, as do most of the intermediate and top-of-the-line packages.

Read part II of this post.

Robbin Steif
LunaMetrics