Small Businesses Learn About Cost Per Lead
It hard to say exactly when a�?cost per leada�? became a common understanding among small businesses, but I started to notice in 2008 that small business advertisers started to question the value of a a�?click.a�? For the early adopters, the local search product had been sending a�?clicksa�? to their website for several years and in general there was a boost in sales that could be attributed to the a�?clicka�? product.A� But sooner or later, small businesses began to wonder, a�?What is the value of a click?a�? and a�?Are some clicks more value than other clicks?a�?A� When clicks were a�?guaranteed,a�? no one seemed to really ask this question, but now that there was a fixed media budget, call tracking, and a reporting dashboard, some small businesses started to add up the costs to determine how much was each lead costing them? Even the definition of a a�?leada�? was somewhat questionable.
The most common approach to determining how much a lead costs a small business was to consider only actual direct contact with the business as a lead, which usually included: (1) a phone call to the business, (2) an email to the business, or (3) walk-in traffic, assuming the business had a retail location.A�A� So a small business would add up all of the a�?leadsa�? for a month and then divide that into the monthly cost of their local search product.
For example, if your business spends a $1000 per month on local search advertising and you determined that your business received 15 leads during that month, your average cost per lead (CPL) would be approximately $67 per lead.A� Is $67 per lead expensive a�� well that depends?A� Generally that depends on two factors: (1) who many leads do you need as a business before you can generate a sale and (2) what is your average sale revenue per transaction.A� For example, if it take on average, three leads (3x $67) to generate a sale and the average sale revenue per transaction is $500, then your net sales proceeds would equal $500 a�� (3x$67) = $299. Assuming your remaining costs were less than your net proceeds of $299, $67 per lead could be considered a fair price for a sales lead.
As small businesses started to get more involved with their online advertising, they were able to make better business decisions because they had more information about their advertising.A� Additionally, information also opened the eyes of some small business managers to the fact that they had essentially been paying out money for years and yielding little return on their investment.A� Sometimes this was the fault of the online advertising product and sometimes the small business just did not understand how to convert a lead into a sale.A� Either way, many small businesses started getting smarter about their online advertising investments and as a result better local search products were demanded by small businesses.
The Contemporary Local Search Product a�� MerchEngines Platform Review
Watch for a discussion of contemporary local search products and the a�?MerchEngines Platform Reviewa�? in the concluding post in this series.