The Value Of A Lead Depends On The Business
So a lot of people might ask, well how much is a lead worth? We know that the average cost per lead on Facebook is $5, but the worth of a lead is gonna bury by vertical and by clients Too soon to be to be, we might be worth $100 if it's really big purchase at the end of the line. If someone is just trying to sell t shirts, they might need to get leads for, You know, $2 or $3 is going to be profitable. So you have to recognize like Dennis was mentioning earlier, the entire path, you know, what is the conversion we ultimately want these leads to fulfill and what's that conversion worth? And when we understand that and the business working in, then we can know about how much elite is worth because part of the social implication engine, part of your strategy is, is knowing the goal. Everyone wants to optimize and tune the ads and we're gonna teach you how to optimize, but you can't optimize if you don't have a goal, you're optimizing to write this is Alice in wonderland where she comes acr...
oss the Cheshire Cat and he says, which path should I take? He says, well, where are you going? She says, I don't know, he says that it doesn't matter what path you take if you don't know what elite is worth for your clients and for the businesses you're working in then optimizing won't matter. I mean you can optimize for the lowest cost, but that's not the right way to do it. You want to optimize per cost, per profitability especially when it comes to scaling because then you can scale and increase the spend against the adds up until that certain threshold point and the client won't know what a lead is worth. You know why it's because they don't know what the sale is worth and they don't calculate it back. So you have to do it for them. We have taught thousands of people how to do maybe tens of thousands of people how to do facebook ads and even they don't know. So here's what you need to do. You start with the end sale. So let's say that what they're selling is a $99 course and you know that X% 10 of the people that become a lead by your course for $100. Then from a revenue standpoint you do the math and you say 10 or sorry you take 100 divided by 10. The conversion rate right? 1 10 and your lead is worth $10 in revenue. Then you look at the margin that they need to have, let's say they need to have a five X. R. O. A. S. And that means that they can pay $2 for that lead, right? So if that lead is worth $10 in revenue and I divide by the R. O. A. S. That tells me how much I can pay per lead because I know how much revenue is there. I know the margin, I know the conversion rate from the lead and I know the margin that that's required. You can use that formula on any kind of business. It can be the real estate agent where they're trying to get leads for people that want to buy or sell their house. Well that house might be $300,000 and they make say two or 3% on that. So maybe that's $6000 6000 dollars for the sale. But how many of those leads turn into a sale. Not everyone who says, hey, I'm gonna go house shopping this weekend is gonna that lead. That might be an interesting lead. Maybe they really do want to buy a house, but they're talking to three other realtors right? Or maybe there really early in the in the stage and they don't want to buy that house for another three or four months, right? There's all these things that will cause the value that lead to be less than what the sale is worth. The number one is that conversion rate oftentimes because we can generate awareness and consideration through facebook, we're able to get people halfway there to becoming a lead. But then that lead source comes through google adwords because they might type in Logan young mortgage broker, he's not a mortgage broker but let's just pretend or they type in a course on how do you have a miracle and there's you've got a course on how to do miracles right. You need to know what that end. You need to walk clients through this. That means you need to know how they don't know how to do this 99% of the time. They don't know. So you have to walk them through this you take the end value of the sale which is dollars. If you do not tie the gentoo actual dollars and you might say oh well the cost of the value of the lead might differ because I'm a mortgage broker and that loan might be for $200,000 but it could be for a $2 million dollar house like in Orange County. Right big houses and mansions that are there. That's okay. Take an average okay what's your average deal size? What's or maybe you're doing this for a consultant and the consultant is selling different kinds of consulting packages and well what's the average value of that consulting package? Fine. You have some clients there are $ and some clients that are $2000. But what's the average $1000. Okay fine let's just take that as a starting point. Take divide what by what the lead conversion rate is the lead conversion rate is What percent of leads becomes sales let's say it's 1%, 1 out of 100. Okay well if If that lead is worth say 100, I'm sorry. If the revenue is $100 and you have a 1% conversion rate, then the lead is worth $1 in revenue. And then the question is, how much will that customer pay for a dollar and revenue? Maybe it'll pay 20 cents. Maybe they'll pay a whole dollar because this is really a trip wire. But the trip wires when you're, you're driving leads in and from that initial sale, you're trying to drive a bigger sales Say you're selling a $7 course, We've got lots of courses that are $7 or $10, right? We're trying to make money on. We're just trying to cover our costs. Well, if we're able to break even on that, then we have a customer that's already happy because they gave us that initial dollar. And now we're trying to sell a $500 course. Right? So just do the math from the this the sale divided through the conversion rate divided by the R. O. S. And that tells you how much you can pay per lead. You need those three components. Sometimes people are willing to lose money on legion if there's a trip wire, if there's some intermediate sale that leads to a bigger sail. People that are motivational speakers. If you have clients that are authors speakers or coaches, they'll do something that's called free plus shipping where they say, hey I've got this book and I'm willing to give it to you for free plus shipping, just pay $8 for shipping and handling and their actual cost of all of this, printing the book and whatever it is actually the cost of the shipping and handling. But you know, because it costs like $2 to print a book and $3 to actually Ship it out to, but they charge you $7, So if they can, if they can drive that free plus shipping offer at that cost and some of them will actually do it for less than that or I'm sorry. Well actually there they will, they will, they're willing to lose money. They'll spend $20 to drive that lead, right? That that only pay $7 for shipping and handling. It's because they're then going to sell a course for $500 or try to get someone into a mastermind for $2000 or $10,000 understand what that funnel is. So you can back into what that lead is worth because if you do not have the right value of that lead, it doesn't matter how good you are optimizing. It doesn't matter how good your copy is. It doesn't matter how much the client believes in you. Everything else falls apart from there. Yeah. We discussed in the previous chapter, The Social implication Engine. This falls in line with that you're gonna want to make sure you understand the value of your leads before you start scaling and optimizing ads. Right? So it's part of that setup phase, understanding the strategy of the client. So make sure you go over this with your client because then you'll know what to optimize because maybe you find that Only one out of every 300 ads or 300 leads. Sorry, convert then you know that. Okay. The problem is not driving leads, it's converting them. You know, that's where I need to optimize. So you can't optimize without going over this first. Alright, So let's help into the next lesson and discuss more about leads.