Everything You Need To Know About The Cost Per Lead B2B SaaS Metric
Generating leads is an essential step in acquiring customers, making it necessary in order to generate revenue for your B2B SaaS company.
However, as the popular saying goes, “It costs money to make money.”
And that includes your lead generation efforts.
That’s why it’s important to keep track of how much money you’re spending in order to generate leads.
But how do you do that?
That’s where the cost per lead B2B SaaS metric comes in.
In this article, we will talk about everything you need to know about cost per lead. We will discuss how to calculate it, which costs are associated with it, and how to optimize it.
So let’s get it on.
What Is Cost Per Lead?
As its name suggests, the cost per lead metric tells you the average cost of generating a single lead for your business.
To start tracking it, you obviously need to consider the total expense your SaaS company incurs in order to generate leads. Then you track how many leads you’ve generated as a result of these campaigns.
How To Calculate Cost Per Lead
You can calculate cost per lead by dividing the total cost of your lead generation efforts by the number of leads you have acquired as a result of those activities.
For example, if you spent a total of $10,000 on marketing and/or sales campaigns associated with lead generation and then acquired 100 leads, your cost per lead is $100.
Another way to see cost per lead is that it gives you an idea of how much money you are spending in order to get people interested in your SaaS products.
You may also track your cost per lead for each of the B2B SaaS marketing channels you’re using.
For example, let’s say your ad spend for display advertising is around $2,000, and then 50 of your newly generated leads came from your display ads. That means your cost per lead for display advertising is $20.
Lead Generation Costs To Consider
Now, exactly which expenses should you include when you’re calculating your cost per lead? Well, it’s simply all the costs associated with your lead generation strategy.
These may include the following expenses:
This cost includes any marketing expenses related to lead generation, such as content marketing, search engine optimization (SEO), email marketing, and social media marketing.
This will also include the salary and benefits that go to your marketing team. If you’re outsourcing some lead generation services and tasks to freelancers or agencies, you will also need to consider their fees in the calculation.
This cost includes any money you spent on advertising, such as display ads, pay-per-click (PPC) ads, or social media advertising.
This includes any expense related to the tools you use for lead generation activities, such as lead generation software, landing page builders, marketing automation tools, and more.
If your lead generation approach is more sales-driven, you will also need to consider any cost related to sales activities. This may include the salary and benefits for your sales team, phone bills, travel cost (if any), and more.
Average Cost Per Lead For SaaS Companies
On its own, tracking and calculating how much you’re spending to generate one lead can already provide you with significant insights as to whether your lead generation strategy is cost-effective or not.
But you can also use industry benchmarks to determine the cost per lead for other SaaS businesses in the same market and compare it with yours.
According to a report by FirstPageSage, we can look at two benchmarks for cost per lead: one for organic channels (such as content marketing, email marketing, and organic social media marketing) and another for paid channels (such as paid ads).
For organic channels, the benchmark is $164 per lead. While for paid channels, the industry average is $310 per lead.
How To Optimize Cost Per Lead
Doing something about your cost per lead isn’t just a matter of reducing it. After all, lead generation is a necessary expense for your SaaS business. Without it, you won’t be able to acquire new customers and grow your business.
So rather, it’s about understanding the cost per lead data you have and using them to optimize your lead generation efforts in a cost-effective way.
Let’s look at some different ways you can do that:
1) Focus On Inbound Marketing
For many types of businesses, lead generation involves various outbound marketing methods, such as cold calling, cold emailing, or purchasing a database of leads.
While these methods may work in some markets in some industries, the SaaS industry may not necessarily be one of them (generally speaking).
You see, these outbound approaches cost more. And in the long run, may not yield as many quality leads.
What’s more recommended for SaaS businesses is to focus on inbound marketing. Strategies under inbound marketing generally cost less and generate higher-quality leads who are more likely to be interested in your SaaS product.
Here are some inbound marketing practices to consider for your lead-generation effort:
Generating leads for a SaaS business shouldn’t just be about the quantity or the number of leads you’re generating. More importantly, it should be about the quality of their leads.
And lead quality isn’t just about the likelihood of the lead purchasing your SaaS product. It’s also about the depth of the relationship you can build with them.
After all, the SaaS business model relies on having long-term customers in order to maximize the recurring revenue you generate from them. And the best way to ensure that your customers stay for the long haul is to foster meaningful relationships with them.
Content marketing is one of the best ways to build relationships and trust with your potential customers early on by providing valuable content that helps them with whatever immediate problem they currently have.
With educational blog posts, videos, and other types of content, it doesn’t have to be about aggressively promoting your SaaS solution. In fact, you don’t even have to mention your product right away.
With informative content, your goal is to gain your potential lead’s trust by providing information that can solve their immediate problems or improve their current work performance.
In turn, that relationship and trust you’ve built will go a long way towards capturing these content viewers as high-quality leads (and eventually loyal customers in the future).
Search Engine Optimization (SEO)
Search engine optimization (SEO) usually works hand in hand with your content marketing campaign in order to make your content pieces more visible on the internet.
After all, even if you make the most helpful and well-written content, if they’re on the last pages of the search engine results, no one will see it.
SEO is all about making your website or content pages rank higher in search engine results by getting Google and other search engines to recognize its authority and credibility.
One way to do this is on-page SEO, which aims to optimize your actual content to show that it’s relevant to whatever keyword you’re targeting. This includes the content’s title, meta tags and descriptions, as well as internal links.
Off-page SEO, on the other hand, focuses on gaining external links from reputable websites in order to show Google that your website or content pieces are credible enough for them to consider for higher search engine rankings.
What’s more, there’s also a technical aspect to SEO, which aims to make it easier for search engines’ web crawlers to go through your website and index its content. This includes optimizing your website’s loading speed, the organization of its content and code, as well as its mobile-friendliness.
By focusing on all aspects of SEO, you can help make sure that your content pieces gain more visibility and get seen by the right people who are actively looking for a solution to their current problems.
And the more people you can attract to enter your website, the more high-quality leads you can generate.
A website visitor only becomes an inbound lead if they voluntarily give their contact information. And it can be very challenging to get past that hurdle, even if you consistently provide them with high-quality content.
To make this easier, you can offer lead magnets, which are free incentives that reward people who give their contact information to your business. Common examples of lead magnets include eBooks, whitepapers, and webinars.
Lead magnets should be designed in such a way that they immediately provide value to the potential customer while also being relevant enough to entice them to fill out your forms or sign up for your email list.
That way, you’re able to capture leads that are more likely to convert into customers down the line.
One of the most effective strategies in using lead magnets is to pair it up with a free-to-access piece of content.
For example, let’s say you have a blog post about the 10 most common mistakes that tech startups make. At the end of it, you may also offer a free eBook that covers the best ways to avoid those mistakes. But in order to download it, your potential lead would have to provide their contact information.
By coupling the free piece of content with a lead magnet, you can leverage the value in your blog post, while also capturing more leads that are likely to convert.
Social Media Marketing
One of the most significant shifts in the world of digital marketing over the last 10 years is the rise of social media.
Not only has it become a way to keep in touch with friends (and make new ones) online. It has also presented a unique opportunity to businesses, especially those that rely on digital marketing.
It’s no secret that social media has become a powerful marketing channel for all types of businesses, and this includes SaaS companies.
What makes social media marketing so cost-effective is its ability to quickly reach a large number of people in an organic manner without the need for paid ads.
By having an active presence on popular platforms like Twitter, Facebook, and LinkedIn, you can start engaging with your potential customers and start building relationships with them early on.
What’s more, your social media profiles can also serve as distribution channels for your content pieces. With just a few clicks, you can quickly get your content in front of new potential leads and help them learn more about your product or service.
Another advantage of using social media for lead generation is its cost per lead compared to other digital marketing channels. Unlike more traditional forms of advertising such as display or search ads, the cost per lead on social media tends to be much lower.
2) Take Advantage Of Lead Generation Channels With Low Cost Per Lead
As we mentioned earlier, you may also track your cost per lead for each marketing or sales channel involved in your lead generation strategy.
This will help you compare these different channels and identify which ones are more cost-effective than others.
Once you have this data, you can then prioritize those that are more cost-effective. For example, if the cost per lead is much lower for organic search than PPC, you may want to shift more of your marketing resources toward SEO.
Don’t get me wrong here, though. I’m not saying you need to just focus on the single most cost-effective channel and ditch the expensive ones. You also need to consider how many leads they are bringing.
So even if some lead generation channels are expensive, if they are consistently bringing in a lot of leads for your SaaS businesses, they may be worth the cost.
What I’m suggesting here is that you focus your resources on cost-effective channels while also ensuring that you are still taking advantage of other costlier but necessary ones.
3) Compare Your Cost Per Lead With Your Customer Lifetime Value
Perhaps the ultimate indication of how cost-effective your cost per lead is is to compare it with how much total revenue you are actually generating for each customer.
That’s where the customer lifetime value (CLV) comes in.
The CLV tells you how much each acquired customer will be worth over a period of time. This can give you an indication as to whether the lead generation costs that you are spending are worth it or not.
For example, if your cost per lead is $300 and your CLV for each new customer is $1,000, then this suggests that your cost per lead may be costing more than necessary.
On the other hand, if your cost per lead was only $50 and your CLV for each new customer was still at $1,000 then this would suggest that you are doing great in terms of cost-effectiveness.
4) Perform A Cohort Analysis For Each Lead Generation Channel
A cohort analysis is an even deeper and more comprehensive way to analyze the impact that each lead generation channel has on your bottom line.
This type of analysis lets you track how each cohort of customers that came from a specific lead generation channel behaves over time.
The analysis would track how each group of customers (or cohort) that came from each campaign behaves over time in terms of things like customer retention rate and CLV.
This type of analysis can help you better understand the cost per lead for each channel in terms of its long-term impact on your business.
For example, let’s say a low-cost-per-lead channel (say, social media marketing) is bringing in a lot of leads but they tend to churn easily and have lower CLV than leads generated from other costlier channels.
That may be an indication that your social media presence is just based on hype and not meaningful relationships.
Final Thoughts: Tracking Your Cost Per Lead To Make Smarter Decisions
The cost per lead B2B SaaS metric is key to understanding the cost-effectiveness of your lead generation strategy.
But more than that, it can also identify your best-performing and most cost-effective lead generation channels.
Armed with these insights, you can make smarter decisions for your lead generation strategy. You would know which specific lead generation campaigns to focus on and how to improve the others.
With a significant gap between your CLV and cost per lead, you can ensure that your SaaS business is cost-effectively growing with the right leads.
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