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The Average Cost Per Lead For SaaS Businesses In 2023

Cost Per Lead For SaaS Businesses

 

Have you ever heard of the saying, “You have to spend money to make money”?

Did you know that it dates all the way back around 200 to 100 BCE?

The amazing thing about this quote (that apparently comes from ancient times) is that it couldn’t be truer today.

Especially for SaaS businesses, you have to raise capital to start your B2B company. And as your business grows, the more money you pour out into different aspects of your company, such as product development, hiring, and of course customer acquisition.

That’s why you need to track metrics such as customer acquisition cost (CAC) and cost per lead. But more than just tracking these financial metrics, you also need to compare them with industry standards to know whether you’re spending too much or too little.

And that’s what we will explore in this article, specifically the average cost per lead for SaaS.

But first, let’s define cost per lead and how you can calculate it.

 

What Is Cost Per Lead?

 

As you may guess from its name, cost per lead is a marketing metric that measures the average cost to acquire one lead.

It typically considers any costs associated with lead generation, such as ad spend, content creation, promotion, and the total payroll for your marketing team.

If you have a sales-driven lead generation strategy, you will also need to include all your sales costs, including your sales team’s salaries and commissions.

What’s more, you also need to consider your fees for any software tool you use for your lead generation efforts. These may include marketing automation tools, landing page builders, pop-up builders, and others.

 

How To Calculate Your Cost Per Lead

 

To calculate cost per lead, simply divide your total lead generation spend by the number of leads you have generated within a particular time period.

For example, if you spent a total of $10,000 on lead generation and managed to generate 50 leads over the same period, your cost per lead would be $200 per lead.

 

cost per lead formula

 

You may also track your cost per lead for each lead generation channel you’re using.

Each sales or B2B marketing channel has different costs and you may want to see how cost-effective each of them is. Tracking your cost per lead for each lead generation channel is a good way to do that.

 

Factors That Affect Cost Per Lead

 

When it comes to finding an average cost per lead SaaS businesses may have, you can’t really pinpoint a single benchmark that works all across the board.

There are a few factors that make cost per lead different from one business to another.

Let’s talk about these factors:

 

Your Industry

 

One of the biggest factors that may affect your cost per lead is the industry you’re in. Different industry markets also face different levels of competition. Not to mention the varying customer sentiments and interests in each of them.

For example, a company in the manufacturing industry will likely need to spend more on lead generation than a company in an industry with a more demand-rich market, say, the pharmaceutical industry.

 

Your Target Audience

 

The size and characteristics of your target audience can also affect the average cost per lead you will incur. Different target audiences require different types of content, promotion strategies, and advertising platforms. And each of these comes with a price tag.

For example, let’s say one SaaS company is mainly targeting small to medium-sized businesses (SMBs). Marketers in this company may need to focus more on email marketing and social media marketing.

Meanwhile, another SaaS company targeting large enterprises may be more inclined toward Google Ads and outbound marketing strategies, which generally cost more.

Additionally, enterprise SaaS providers tend to acquire a smaller number of customers with significantly bigger contract values, which the cost per lead metric does not consider.

 

Your Lead Generation Channels

 

The biggest factor that decides your cost per lead is the marketing channels you are using. Different channels come with different average costs, so it’s important to consider this when calculating your cost per lead.

There are two main types of lead generation channels you may be using: organic and paid.

Let’s take a closer look at these types of channels:

 

Organic Lead Generation Channels

 

Organic lead generation typically involves an inbound marketing strategy. Rather than proactively reaching out to potential leads or paying for ads, inbound marketing focuses on drawing leads to your website.

You do this by creating content that would provide value to prospects, attracting them to give you their contact information or sign up for your email blasts.

It may include the following inbound marketing channels:

  • Content marketing: This includes the creation and publishing of informative content, such as blog posts, videos, eBooks, and podcasts.
  • SEO: Search engine optimization (SEO) is the process of improving your website’s visibility in organic search engine results through various strategies. This channel is usually used in tandem with content marketing in order to make content pieces more visible and accessible to potential leads.
  • Organic social media marketing: This involves creating content and engaging with prospects on social media such as Facebook, Twitter, and LinkedIn. Social media can also be an excellent platform for promoting your content.
  • Webinars: Webinars are one of the most effective lead generation channels, as they can help establish your brand’s authority and trustworthiness. What’s more, you can also offer webinar invites as lead magnets, which can help you get website visitors to provide their contact info.
  • Affiliate marketing: With this type of channel, you form collaborations with other marketers or influencers in order to promote your SaaS product. In return, you pay them a commission for each customer that comes from their links.
  • Trade shows: B2B lead generation isn’t necessarily just about digital marketing. It can also be done in person, in the form of attending trade shows. These live events allow you to meet potential customers face-to-face, demonstrate your SaaS product, and get your prospects’ contact information.

 

Paid Lead Generation Channels

 

Paid lead generation, as its name suggests, involves investing in targeted ads and campaigns to reach potential leads.

The most common paid channels include the following:

  • Pay-per-click (PPC) ads: These are paid ads (usually a Google ad) displayed at the top of the search engine results pages (SERPs).
  • Social media advertising: These are highly targeted sponsored posts that appear on social media users’ timelines. You may use a Facebook Ad, LinkedIn Ad, or any other social media platform that offers paid advertising services.
  • Display ads: Banner or display ads are graphical ads that appear on third-party websites.You can use display ads to promote your SaaS product, build brand awareness, and of course capture leads.
  • Retargeting ads: Retargeting works by following up with website visitors who left your site without converting. It uses cookies or tracking pixels to serve targeted ads specifically designed for these prospects.
  • Lead vendors: Lead vendors provide access to a database of leads that you can readily contact. Although these bought leads tend to be of low-quality, some vendors offer pre-qualified leads that fit your desired criteria.

Since your lead generation channels are the factors with the most significant impact on your cost per lead, we will be focusing on the average cost per lead for each of these channels.

 

Average Cost Per Lead By Lead Generation Channel

 

According to FirstPageSage, the average cost per lead for organic channels is $164 per lead. While for paid channels, it is a much higher $310 per lead.

However, VisitorQueue also reported more specific average cost per lead values for some specific sources of leads:

 

Lead Source and Cost per Lead

 

Note, however, that these average cost per lead values don’t take into consideration the quality of the leads or corresponding lead conversion rate, which can also impact their usefulness.

While some channels (like lead vendors) may offer relatively low average cost per lead values, the majority of the leads you generate may not even be the slightest bit interested in your SaaS product.

 

Final Thoughts: Compare Your Cost Per Lead With Your Customer Lifetime Value

 

Measuring your cost per lead values and comparing them with the industry averages is a good first step.

But what’s more important is to compare your lead generation spending with the actual revenue you get from each customer you acquire.

This way, you can really assess whether or not your lead generation efforts are paying off.

That’s why you also need to measure your customer lifetime value (CLV) and compare it with your cost per lead.

Ideally, you should have a wide gap between your CLV and cost per lead. This way, you know that for every dollar you spend on generating leads, you’re getting a significant return on your investment.

It would also be good to track your CLV/CAC ratio. As you may guess, this is the ratio between your CLV and CAC. This tells you how much revenue you gain for each dollar you spend on marketing and sales.

By tracking the right SaaS financial metrics and comparing them, you can make more informed decisions on which lead generation channels to invest in and how much you should spend.

Ultimately, this is the best way to ensure that your average cost per lead remains low but your returns remain high.

Looking for more guides to take your SaaS business to the next level? Check out our blog site here.

 

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Ken Moo
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