Small Businesses Learn About Cost Per Lead
It hard to say exactly when “cost per lead” 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 “click.” For the early adopters, the local search product had been sending “clicks” to their website for several years and in general there was a boost in sales that could be attributed to the “click” product. But sooner or later, small businesses began to wonder, “What is the value of a click?” and “Are some clicks more value than other clicks?” When clicks were “guaranteed,” 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 “lead” 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. So a small business would add up all of the “leads” 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. Is $67 per lead expensive – well that depends? 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. 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 – (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. 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. 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. 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 – MerchEngines Platform Review
Watch for a discussion of contemporary local search products and the “MerchEngines Platform Review” in the concluding post in this series.