The Basics of Lead: What It Is, Why It Matters and How Much It Costs

Whether you are new to the world of marketing, have an established business or simply curious about how to increase your sales, you might have heard the term “lead” before. But what exactly is a lead and why is it so important for your success?

In this article, we’ll explain the basics of lead generation and lead management and how you can use them to attract, nurture and convert potential customers. We’ll also cover different types of leads and costs of acquiring them. By the end of this article, you’ll have a clear understanding of what lead is and how to use it to boost your business. So, let’s get started!

In marketing, a lead is someone who shows interest in your product or service by taking a desired action. For instance, if you want people to fill out a form and provide their phone number, that’s your goal. Anyone who does that becomes a lead.

In sales, a lead is anyone who engages with your brand in some way:

• Example 1: Someone picks up your business card and calls the number on it.

• Example 2: Someone sees an ad for kitchen furniture on Instagram and messages you directly.

If a lead is someone who completes an action (like giving their contact details), then conversion is the ratio of people who do that out of all the visitors to your site.

Conversion is calculated using this formula: number of actions / number of visitors × 100%. For example, in one month you had 1270 visitors and 173 of them filled out the form. Then, 173/1270 × 100% = 13%. You have 173 leads and a 13% conversion rate.

Types of Leads

In marketing, leads can be classified into different types based on their stage in the sales funnel and their level of interest. Here are some common types of leads and what they mean:

• Cold leads are people who have little or no knowledge of your product. They are the hardest to work with, as they are not interested in your offer and may ignore or reject your messages.

• Warm leads are people who have shown some curiosity about your product, but have not yet made up their mind whether to buy it or not. They are in the middle of the sales funnel and can be persuaded to buy with the right incentives.

• Hot leads are people who have already decided to buy your product. They are at the bottom of the sales funnel and ready to make a purchase. For example, they may have added a product to their cart or tried a demo version of your app.

• Targeted leads are people who fit your ideal customer profile. They match your criteria, such as geolocation, age, income, etc. For instance, if you sell hand-made ceramic ware in Madrid (and don’t ship nationwide), then your targeted leads are people who live in your city and want a custom cute cup or dish.

• Non-targeted leads are people who are not suitable for your product. They don’t meet your criteria or have no interest in what you offer. For example, someone who dialed the wrong number is a non-targeted lead.

• Confirmed leads are leads that have valid and accurate contact information (including name) and belong to real people. They have filled out all the required fields in your form and verified their identity.

What is Lead Generation?

Lead generation is the process of attracting and capturing potential customers or leads. There are two types of lead generation:

• Direct: The customer finds and explores the product on their own.

• Indirect: The marketer creates demand by promoting the product through various channels.

The choice of lead generation methods depends on your business niche and your advertising budget. Here are some common ways of generating leads:

• Website. A website can generate leads by using a pop-up that invites the visitor to enter their contact information, such as their email address. Usually, the company offers something valuable in return, such as a discount or a demo version of the product. This is called a lead magnet. The company can then use the collected contacts for email marketing, which is a way of informing customers about new products, promotions and other updates. The website can also act as a landing page – a web page that other lead generation methods direct customers to.

• Google search engine. Research shows that the first three search results on Google get 75% of all clicks. This means that the higher your website ranks in the search results, the more targeted leads you will get. Moreover, leads from search engines are “warm”, because they are already interested in a specific product and actively searching for information about it. To rank higher on Google, you need to optimise your website for SEO (search engine optimization). This involves creating quality content, improving page loading speed, using relevant keywords and so on.

• Google Display Network (GDN). It is a powerful way to get quick and warm leads for your business. How does it work? You create an ad that showcases your product or service and target it to people who are searching for related keywords. For example, if you run a dental clinic in Toronto, you can set up an ad that appears at the top of the search results when someone types in “dental clinic Toronto”. This way, you can attract potential customers who are already looking for what you offer.

• Social media advertising. Social media is a huge platform on the internet, with 4.8 billion users as of April 2023, which is more than half of the world’s population. That’s why advertising on Instagram, Facebook and other popular social networks can be a great way to reach a large audience and spread the word about your product.

Unlike contextual advertising, which targets people who are already searching for something related to your product, social media advertising works with a “cold” audience that is not yet ready to buy. But the upside is that you can choose who to show your ads to. For example, you can target women aged 25-30 who live in Boston and use Facebook on their mobile devices.

• Customer referral system. A customer referral system is a way of encouraging your clients to recommend your product to others. For example, you can offer your customers discounts for every new lead they bring to your company. This is a win-win situation: you get more leads and your customers get more savings. Plus, people tend to trust word-of-mouth recommendations more than ads, so this can boost your credibility and reputation.

What Lead Management Is and Why You Need It

Lead management is the process of guiding a potential customer from the moment they show interest in your product until they make a purchase. Lead management involves four stages (also known as lead time — the time it takes to close a deal):

• The first stage is choosing the promotion channels. For example, you can use social media and Google ads to reach your target audience.

• The second stage is collecting additional information about the customer using lead tracking. This means that you monitor the customer’s actions on your website, such as what buttons they click, what products they view, and so on. Then, you enter this data into a CRM system (or a lead source tracking tool). This helps you segment your leads later.

• The third stage is segmenting your leads, which means separating the targeted leads from the non-targeted ones. You also classify them into “cold”, “warm”, and “hot” leads based on their level of interest and readiness to buy.

• The fourth stage is warming up your leads, which means providing them with more value and persuasion to lead them to purchase.

How Much Does It Cost to Get a Lead?

Cost per lead (CPL) is the amount of money you spend to acquire the contact details of a potential customer. You can calculate the CPL by dividing your advertising budget by the number of leads you get.

For example, let’s say you run a custom furniture shop and you advertise on Google. In one month, you get 95 clicks on your ad, and out of those, 7 people fill out a form on your website. You pay $1 for each click, so your total budget is $95. To find your CPL, you divide 95 by 7, which gives you $13.57. This means that each lead costs you $13.57.

However, there is no fixed cost for one lead, as it depends on various factors, such as the promotion channel, the competition level, the region, the business niche, and so on. Different channels may have different costs and conversion rates, and different industries may have different demand and supply. Therefore, you need to do some research and testing to find out the best way to optimise your CPL and get the most value for your money.

Conclusion

Lead generation and management are essential skills for any marketer or business owner who wants to grow their customer base and increase their sales. By learning how to attract, nurture and convert leads, you can boost your business performance and achieve your goals. Whatever strategy you use, you need to know how to optimise your cost per lead and provide value to your potential customers. We hope you can apply what you have learned from this article and see positive results in your business. Good luck and happy marketing!

FAQ

What are poor quality leads?

Poor quality leads are customers who are not a good fit for your product or service, either because they don’t meet your criteria, such as financial capacity, or because they don’t respond to your communication attempts. These leads are unlikely to convert into sales and may waste your time and resources.

What kind of budget do I need for lead generation?

The budget for lead generation varies depending on your business niche, season, competition and other factors. The cost of one lead depends on the promotion channel you use, such as Google ads, social media ads or customer referrals. You can estimate the approximate budget for a test campaign by finding out the average cost of a click, a view or a referral in your region and industry.

Are a lead and a client the same thing?

No, a lead and a client are different stages in the customer journey. A lead is someone who has shown interest in your product or service, but has not yet made a purchase. A client is someone who has already paid for your product or service and become your customer. The goal of lead generation and management is to turn leads into clients by providing them with value and persuasion.

What does Pay per Lead mean?

Pay per lead is a way of paying for advertising based on the number of leads you get. It can be a good option for businesses that want to generate more potential customers and grow their email list. However, pay per lead can also be risky, as not all leads are qualified or ready to buy. You need to make sure that the leads you get are relevant, interested and valuable for your business.