“What are your goals for this campaign?”
This is one of the most important questions that a software company must answer before starting a new inbound lead generation campaign. The responses we hear from companies that want to advertise on Capterra are as varied as “we just want to test this out to see how it performs” to “we want to convert 6% of our traffic and stay under $100 cost per lead.”
Regardless of what a vendor’s goals are, there is one thing that every software marketer should do before investing in a new channel: formulate a strategy that will deliver the best return on their investment. Every software company has different goals but two common ones that we often hear at Capterra are to generate revenue and increase lead volume.
Our savviest vendors know exactly how much revenue a new customer means to them. Your average customer lifetime revenue (CLR) is the first and most crucial metric to calculate before starting any new paid campaign. This lets you know exactly how much revenue will be generated from each new lead, opportunity, and customer, and in turn, helps establish key metrics like Cost Per Lead and Cost Per Acquisition.
Determining Customer Lifetime Revenue
(Average Monthly Revenue per Customer) x (Average # of Months a Customer Stays With You)
Lifetime revenue is just the first step as you formulate a lead generation strategy. Once you know the average lifetime revenue of a new customer, you must then decide if you’re prioritizing short-term growth or long-term profitability. Essentially, how much of your revenue should you dedicate to marketing channels? According to WebStrategies research, vendors who spend 5-10% of revenue are conservative in their growth potential while those who are aggressive will invest upwards of 20-30%.
While average customer lifetime revenue is important, it’s just as important to calculate your target Customer Acquisition Cost (CAC) and target Cost Per Lead (CPL). In order to calculate Cost per Acquisition, take the average lifetime revenue and multiply by the percentage that you are willing to invest in the channel.
Determining Customer Acquisition Cost
(CLR) x (% Dedicated to Marketing)
Once you’ve established your target CAC, you can then determine your target Cost Per Lead by multiplying your CAC by your sales close rate and qualification rate. This metric should tell you how much at most you should pay for a lead.
Determining Cost Per Lead
(CAC) x (Close Rate) x (Qualification Rate)
For my vendors who utilize this approach, we work to establish a CPL range that will still deliver a positive return. For example, if their target CPL is $120 in order to produce a positive ROI, we know exactly how much we can bid to still deliver a positive return.
Increasing lead volume is a common goal in marketing, as the more leads you generate, the more opportunities you have to close more sales. I have a few vendors whose primary concern is to build up their prospect base so their sales teams can have a strong pool of leads to work through. Their reasoning can be varied but most of the time it is because they have exhausted their current prospect base and need to be more aggressive in lead generation.
So how many leads do you need to generate in order for your sales team to produce a positive ROI? In order to determine that number, you will want to look at two metrics: qualification rate and close rate.
Your qualification rate is the percentage of opportunities generated from Marketing actually deemed to be sales-ready, commonly known as Sales Qualified Leads (SQL). This number typically varies by marketing channel and by organic vs. paid traffic. According to Geckoboard, roughly 30% of all leads are deemed sales qualified, or what we like to call the ‘Rule of Thirds’ in Pay-Per-Click.
Rule of Thirds
- ⅓ will be good quality and a great fit
- ⅓ will be good quality but a bad fit or wrong size
- ⅓ will be spam or junk leads
Your close rate is the number of closed opportunities (new customers) divided by the total number of opportunities that are in your sales funnel at a given time. Close rate can also vary by the lead source and even the sales rep. To guide your benchmarks, Hubspot found that the average close rate in Computer Software was 22%.
Determining Close Rate
(Closed or Won Opportunities) / (Total Opportunities)
What percentage of your leads are deemed sales qualified? How does your sales team compare to industry averages? By knowing these KPIs, marketers can determine exactly how many leads they need to generate each month in order to generate a positive return.
There is no right or wrong approach as every company has different goals, both short and long term. What every software company should do is formulate those goals with data and establish KPIs that will deliver a positive ROI. The more data and information you have, the easier it is to develop a successful lead generation strategy for your company.
There are many more metrics to keep in mind as you continue marketing your software. Which ones do you use to measure the success of your marketing campaigns?