The Business Of Marketing: Knowing Your Allowable Cost Per Lead

$125 marketing budget to generate an estimate, multiplied by 50% lead-to-estimate conversion rate, tells us that your allowable cost per lead is $62.50.

Verifying Your Cost Per Lead

So let's work the numbers backwards to verify that the CPL number from our example truly is accurate.

Let's say we have a marketing budget of $6,250. We are able to buy leads at an average of $62.50 (our allowable CPL from above).

Based on this, we would generate $6,250 / $62.50, or 100 leads.

Of these 100 leads, 50% will receive an estimate (again, from our number above). That means 50 of the leads will convert into an estimate.

Of these 50 estimates, 25% will close into a sale, or 12.5 sales.

The average sale from our example was $5,000. Multiplying the average sale by the number of sales generated ($5,000 x 12.5) gives us $62,500 in revenue.

If we take our $6,250 marketing budget, and divide it by the $62,500 in revenue generated, we would have a marketing percentage of 10%.

Ten percent marketing was the goal - thus the allowable Cost Per Lead of $62.50 is accurate.

Wrapping Up & What's Next

Hopefully, you've found this first article an intriguing look into "The Business of Marketing".

Next article, I'll share with you the three remaining Key Performance Indicators in your business's marketing machine, and the impact that tracking them can have on your company's revenue and profitability.

Damion Rutherford is an 11 year vet in the construction marketing industry. He's personally generated over 150,000 leads and millions in revenue for home improvement contractors across the country. Learn more of his insider secrets to construction marketing at www.Contractor-Marketing-Tips.com.