Lead conversion does not follow a one-size-fits-all approach. Yet many organizations believe that the standards are never-changing. It is time to challenge these assumptions.
Lead generation is facing its biggest drought ever. The rampant competition among players, all vying for the buyers’ attention, has made the resource scarce and costly. The rate required per lead has increased dramatically.
As costs for a single lead rise, it is crucial to find a lead conversion rate that is perfect for you, or else you might burn more than you’re making.
This involves understanding the industry you’re in and your business needs. There is a simple formula.
According to Klipfolio, this is what it looks like:
Lead Conversion Rate = (Number of leads converted to customers) / (Total number of leads generated) x 100
However, this simple formula hides the complexity behind this concept. A delicate balance between lead generation and cost saving.
What is Lead Conversion Rate and Why is It Your Most Important Metric?
Defining Lead Conversion Rate: More Than Just a Number
Marketing and Sales each have a dollar cost behind them. Each activity should ideally yield a result, especially in terms of lead generation.
The leads that these two teams generate and close have value. That’s either gained value or lost value. Lead conversion rate helps you understand if you’re making a profit out of these business functions.
And this rate is the basis of success for marketing departments, because it helps them identify CAC, showing them exactly how much cost was involved in acquiring a single customer.
The “Why”: How Tracking LCR Drives Purposeful Growth
LCR is the basis for all future calculations. The difference between CAC (customer acquisition cost) and CLV (customer lifetime value) is based on how many of your leads convert per campaign.
And CAC: CLV is the basis of all growth in a business. If the cost of acquiring a customer exceeds the customer’s lifetime value, then your organization is looking at trouble.
And the predictor of this trouble is the LCR. It can either inform growth or a downward trajectory.
The Simple Math: How to Calculate Your Lead Conversion Rate Accurately
The Core Formula for Lead Conversion Rate
The basic formula for LCR is: (Number of leads converted to customers) / (Total number of leads generated) x 100
What Qualifies as a “Lead”? (MQL and SQL)
Here lies the hidden complexity. Any high-performing organization must have its definition of a lead.
Organizations should set custom qualifiers for both MQLs and SQLs. And while the qualifiers can overlap, marketing and sales teams must be vigilant of what passes as an MQL and an SQL. If there is a batch of leads that has not shown engagement in the way the teams want to, they have to be nurtured or dismissed.
Every organization should have a different method, tailored to its own needs. But usually, while creating these qualifiers, here are some healthy questions to ask.
For MQLs:
- Does your past data help you identify the positive behaviors of an MQL?
- Are you basing the MQL around the number of touchpoints or by direct communication with the brand? E.g., email replies, open/click rates, social media mentions, reading blogs, etc.
- What does engagement look like for your brand?
And For SQLs:
- Have the SQLs been nurtured, and do they have knowledge of what your brand does? How can you identify this?
- Does the lead frequent your offers or similar offers from competitors?
- After identifying engagement, are they engaging with the brand like you want them to?
- What conversations, if any, are they having about you or their problem? What is their need?
Such reflective questions usually help teams grow their understanding of the qualifiers.
Because without them, your lead conversion rate is going to lag. And your teams will end up chasing prospects that go nowhere.
Benchmarking Success: What’s a “Good” Lead Conversion Rate?
The Truth About Universal Benchmarks (Hint: They Don’t Exist)
Most marketing and sales teams want a universal answer. Trying to capture certainty where it doesn’t exist. Similarly, there will never be a universal benchmark. Someone will either outdo or underperform.
It is the two teams who must, through alignment, find the perfect-fit conversion rate for their organization.
Finding Your Place: Lead Conversion Rate Benchmarks by Industry
But at least, here’s a comparison to get your teams started. These analytics are based on RulerAnalytics research.
Source: https://www.ruleranalytics.com/blog/insight/conversion-rate-by-industry/
- Agencies – 2.3%
- Auto- 3.7%
- B2B E-commerce- 1.8%
- B2B Services- 2.7%
- B2B tech- 2.3%
- B2C- 2.1%
- Dental and Cosmetic- 3.1%
- Finance- 3.1%
- Healthcare- 3.0%
- Industrial- 4.0%
- Legal- 3.4%
- Professional Services- 4.6%
- Real Estate- 2.4%
- Travel – 2.4%
The logic here is that the industries that have lower conversion rates have higher selling rates and require more deliberation from the people buying the solution. Very apparent by the B2B E-commerce example, which has long sales cycles and expensive solutions.
Use these benchmarks as a base and see where your organization lies in the graph. But don’t make these numbers your sole indicators; perhaps for your company, the LCR may not need to follow the norms.
It depends on your product/services and your methods of conversion.
The Power of Internal Benchmarking: Your Most Important Competitor is You
Every H1 and H2, your organization will set a new benchmark, whether it will be better, neutral, or worse. These are the benchmarks you must break and avoid. And ideally, the only one you should care about once you have established a solid base.
Beyond the Basics: Key Metrics to Track for a Holistic View
Now that the essence of LCR has been captured, it’s time to pivot and focus on the things that affect it. These will help you get an understanding of what’s working behind the curtain.
Let’s take a granular approach to the lead conversion rate.
Bridging the Gap: MQL to SQL Conversion Rate
MQL to SQL conversion rate is a vital factor in predicting your LCR. However, you need to have a good ratio of this number. Usually, what marketing does is give a bulk batch to sales teams, and almost all of them turn out to be bad ones.
This is an industry-wide problem. That’s why MQLs should be thoroughly vetted. Even a bath of 10 leads is better than 1000s with no substance behind it.
And as for the conversion rate, Klipfolio says the average is 13%.
Understanding Your Investment: Cost Per Acquisition (CPA)
CPA is a vital metric that often gets lost in the noise of marketing metrics. Yet, its influence on your profits cannot be understated.
This is where most teams lose money. They don’t track cost per acquisition or cost per action. Every touchpoint has a cost behind it. It basically tracks the cost it takes to influence a person to take an action.
The formula for this is: CPA = Marketing Cost/Total Actions Taken
The CPA gives a clear indicator of whether marketing is optimized or not in terms of finance, and also helps you make sense of the cost.
The Long Game: Customer Lifetime Value (CLV)
At the heart of it all is the CLV; this metric is definitive proof of your business’s success. Your CLV has to be higher than the CAC. Usually, a good CLV: CAC ratio is 3:1. For every 1$ spent, you should get at least $3 in return.
Note: All of these metrics lead to one thing: Cost optimization and efficiency. Something your CFO will appreciate and help you move marketing from a cost to an investment. This is the language of finance.
From Insight to Action: Strategy to Skyrocket Your Conversions
Once you have all the moving parts, a final step remains that organizations must undertake. Process alignment. What does this mean? It’s essentially nurturing your leads and aligning sales and marketing.
People increasingly buy based on their needs, desires, and problems- nurturing must position you as the solution. But beyond nurturing is an essential step that is still not part of an organization’s focus.
Empowering Your Team: Fine-Tuning the Sales Process
Aligning Sales and Marketing for a Seamless Customer Journey
Sales and Marketing alignment is no longer a buzzword; it’s a strategic differentiator. And it must be used as such. And alignment goes beyond defining leads and metrics; it means learning from each other.
Sales teams know buyer wants and have field knowledge. Marketing teams have data that is valuable to both the CFO and CSO. It helps them smooth out the conversion process.
Directly impacting your bottom line and conversion rates.
Transforming Your Business, One Conversion at a Time
Conversion means taking a unique approach to solving problems. Often, teams get stuck chasing certainty, but it is an organization’s endeavor to find a conversion rate that hits all the right chords.
And while there are many moving parts, top leaders must not forget that they are created through brainstorming and open communication.
Align your sales and marketing; that is what improves conversion.
