Why Tracking Cost Per Lead Never Works Out the Way You Planned

March 11, 2019

Big or small, companies everywhere are implementing sales development teams. The gritty, hardened Sales Development Reps (SDRs) that pass along leads to your executive sales team tend to do the heavy lifting of outbound prospecting, and honestly, it can be pretty costly. Because of that, a lot of companies choose to outsource this function. Getting a healthier funnel for your sales team to work with is the overall goal — to more effectively qualify the top part of the funnel so your executive sales team can focus on the bottom part, closing leads. You’re relying on that outsourced team to increase your MQL’s, ISQL’s and SAL’s — both in quantity and quality. So why would you track that team on a cost per lead basis?

Cost Per Lead: Defined

Measuring on a cost per lead basis boils down to putting a price on every activity your sales development team makes. Ideally, you want that cost to be as low as possible — meaning that your reps are producing the high number of leads (SAL’s) you want without draining additional resources. The formula reads as total spend on SDR’s over total leads passed, giving you the price you “pay” per SAL passed to your sales team.

While using the cost per lead metric might be the simplest and most popular way to measure your SDRs, it’s not applicable in all situations. For a team that’s hired to improve your funnel health, you need to come up with other metrics to track them more accurately — specifically ones that highlight the quality of the opportunities that get passed along to your sales team. With the cost per lead analysis, you miss out on tracking the value of your pipeline, thus foregoing any kind of funnel projection metrics.

Pitfalls and Solutions

When you take a look at your team and decide to measure them on a cost per lead basis, more often than not they respond with a spike in passed leads. After all, the more leads that get passed the lower the cost becomes. Problem solved? Not quite. What ends up happening is the higher volume of leads tend to dip in quality, and with that dip in quality comes a lower conversion rate. That is the key to measuring your sales development team’s success — if the opportunities aren’t converting at a high enough percentage then the executive sales team is wasting their time with discovery calls and demonstrations. It’s great to get a high volume of leads for a reasonable cost — and in specific situations it’s the right move — but if they don’t convert you’re wasting time. Opportunities that never come to fruition don’t help out anyone but your bottom line, and suddenly that cost per lead analysis doesn’t paint the whole picture.

The metric you should be tracking is Cost per Opportunity. When your sales team is receiving leads (SAL’s) from the SDR’s it’s still up to you to track them, but not on a cost per basis. Save that metric for SQL’s — qualified opportunities that have been accepted by your sales team and are currently in their pipeline. From there you can get a more accurate picture of not only the value your sales development team generates, but also of your true pipeline valuation (and not just the value of one team of SDR’s). Tracking opportunities help you get a more holistic picture of projected growth, while tracking your cost per lead will yield a murky projection for one specific marketing channel.

The demandDrive approach

By focusing on metrics other than cost per lead we’re able to better determine the value our SDR’s can deliver to our clients. Seeing how many of their leads convert into opportunities for the sales team paints a better picture of our work, and is tangibly more effective at determining value. Being able to weight pipeline valuation also directly ties our work with a monetary amount for the client, something we’ve found to be more beneficial than measuring how much each individual lead “costs”.

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aj alonzo

AJ Alonzo is the Head of Marketing at demandDrive. A former SDR turned marketing leader, he's made it his goal to develop resources for sales reps who are looking to level up and for managers who are looking for guidance. Outside of work you can find him trying to shoot under par at his local disc golf course, sipping on a bourbon on the rocks, or continuing his quest to be the very best like no one ever was.
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