How Much Should You Spend Per Lead

October 19, 2020

Show Notes

As a business owner there are a few things you have to know to be successful long-term. 

Number one is your Numbers. 

You have to know the numbers in your business. Can you imagine selling a product or service, thinking you made a profit, but really you lost money? 

It happens all of the time, sadly. 

But in today’s episode we we are going to clear things up and move you in the right direction, to grow your business profitably

What you’ll learn :

1. What you should really be focusing on when thinking about your cost per lead

2. What numbers matter the most when determining your return on investment

3. And walking you through our lead cost calculator LIVE

If you’re a local business owner who wants to generate more qualified appointments online we created a free training to show you our proven three step process. Watch the training

p.s. If you want the the calculator for Free, just send us a DM on Instagram @BitBranding

Connect with us

Our Company Website

BitBranding on Facebook

BitBranding on Instagram


Christian [00:00:00] How much should you spend per lead? In this episode, we're going to actually give you a different question that you should be asking instead of that one. We're going be talking about how most businesses are not doing some of the things that we're talking about in order to get these numbers and we actually have a straight up solution for you on how to get that number. 

Christian [00:00:22] How much can you actually afford per lead? 

Christian [00:00:25] We're gonna walk it through our calculator. Check it out. 

Narrator [00:00:29] This is the Marketing Natives. Providing actual ways to grow, improve, and succeed in your business. 

Narrator [00:00:37] And now your host, Christian and Aaron. 

Aaron [00:00:44] All right. So I want to ask Christian. I think we've talked about this, but let's just, I guess, jump into this first. The question is or the title of this episode is how much should you spend per lead? But really, that's not the question you should be asking. So, we'll talk about that here in a second. But I always want to just hear nonchalantly, like, have you heard about that prior to this document? 

Christian [00:01:09] I don't think so. 

Aaron [00:01:10] OK. So, just kind of give context. This is something new that I've learned probably within the last six months or so just from like a course that we bought. And then also just listening to other people teach and understanding the numbers, which we'll talk about here in a second. But it's the question should really be, how much am I willing to spend per lead? Because if you think about it, like every time we talk to a business owner and we've done this for ourselves, it's been, oh, we can get our yearly cost for three dollars or 30 or 100 or whatever. And that's what the businesses want to know. But instead, we should be asking them the question, OK, how much could you spend to still be profitable? And the reason for that is like, OK. So Christian has a I don't know what kind of company do you have Christian? 

Christian [00:01:52] I have a water bottle company. 

Aaron [00:01:54] OK. You stole my idea. He was looking at camera guys for those listening on live. So Christian has a water bottle company and it's ten dollars to make this water bottle and do everything and he makes five dollars off of it. Well, OK, if he gets a lead or he gets a customer, I guess for let's just say six dollars. Well, he just lost money. OK. But if you know your numbers well enough and know that, OK, for every time Christian sells one water bottle, that person comes back every two or three months and will buy two more. 

Aaron [00:02:24] So they made thirty dollars. 

Aaron [00:02:25] And you're like, OK, I'll spend six dollars or seven dollars to make 30. So now it just becomes a numbers game of like, OK, how many people can I get in to buy the six dollar water bottles to get 30 dollar purchases later on vs. just saying, OK, if I was to tell to Christian, he's like, no, I can't do that. I'm not profitable. Like if I get six dollar leads or six dollar purchases, then I can't. Like, it's not going to work for me. I can't run ads. I can't make this work because it's just, it's not profitable. So then you have to work the numbers differently. And it's also like if Christian says he's got a water bottle company, let's just say I have a I don't know, a cooler company that's like very similar and same price point and everything. And Christian says, okay, after five dollars, I'm not going to spend anymore because I can't acquire that lead. And I'm like, I'll spend ten dollars because if I spend ten dollars and I still no, I make 30, then that's fine because I'm still profitable at that point and I get all of the leads that Christian would have got because he stopped spending at five and I can go five more dollars. So I get everybody who is at six, seven, eight, nine and ten dollars because he wanted to quit earlier. 

Christian [00:03:37] So you're basically going after the lifetime value of the customer that purchases the first time. 

Aaron [00:03:45] Absolutely. 

Christian [00:03:45] And so how do you determine that once this person buys, they will purchase again? 

Aaron [00:03:53] So you have to make if you've never done this before. Like, for example, your brand new business is the only time you ever have to figure this out. If your brand new business. You have to make an estimate of like, OK, my competitors or I've done research and every, you know, six months somebody lose it. They love their water bottle, but they lose the water bottle because it's camouflaged. I don't know. Then you would based off of that. But if you're an existing business, you should know, like Christian's been selling water bottles for ten years. I've figured that out just a second ago. You should know, OK, I have a customer list and I got a list here of like Becky and Becky's purchased 20 times. Well, Becky spent a lot of money with us, but there may be 2000 other people who have purchased a water bottle in at least twice. So then, you know, OK, I know that on average, the customer is going to spend two to three times on the water bottle. Now, I can run my numbers and figure that out. So you do have to do some research and you have to find out how much it costs for you to make the product? and how much to be profitable? But then you also need to figure out, OK, how many times has this customer stick around? and then you start to run numbers, which as we're talking about on a video and a podcast, it's a lot. We'll get into this a little bit later. But, it's you guys probably like, Oh dang there's a lot of numbers I'm driving around. Like, I don't understand that, but the point is from number one here is that you should be asking the question, how much of I'm willing to spend to acquire this customer? I'm trying to think of, is there any big companies that you can think of that just they just spend so much money on advertising? I'm thinking like Coca-Cola, Apple. Apple doesn't really, Let's say Coca-Cola. I'm trying to think of other big companies spend a lot. Pizza Hut spends a decent amount. I'm assuming, I'm trying to think of those companies that are just like they're everywhere. Like everywhere. 

Christian [00:05:40] AT&T. 

Aaron [00:05:41] AT&T for sure. They know that they're going to like, re-reap the benefits of it long term because they know how much they can acquire customer for. So that's what we wanted to talk about here. Does it make sense? I guess the how much should I be willing to spend per lead? 

Christian [00:05:55] Yeah. It was really. I think it forces. 

Christian [00:05:58] I think if you go the other way around how much you spend per lead, someone's definitely looking for that right now right before they landed on this podcast. But I would say like, yeah, that will be the easiest route, right? For you to type that in online. And then for online, give you some averages and then you just go off of that and instead of, I guess, rephrasing the question and saying, how much am I willing to spend per lead forces you to deep dive into your numbers and look at. OK. How much can you really, you know, are willing to spend instead of some average number that Joe Blow is telling you over here on on this blog. 

Aaron [00:06:37] Right. 

Aaron [00:06:38] One's internal and one's external and. 

Christian [00:06:41] Which I think is important to get some averages. 

Aaron [00:06:43] Yeah. 

Christian [00:06:43] But at the same time, at the end of the day, like your business is unique from any other business. And by asking this question and by following the cost calculator that we're going to talk about here in a second. 

Aaron [00:06:56] Ooh Easter egg! 

Christian [00:06:57] Then it's going to give you a very accurate number. I mean, obviously, might you know, average some of those numbers out, but it's going to give you a better number than what, you know, any other average number is going to give you while you're searching for. 

Christian [00:07:12] Hey, how much should I spend per lead for a marketing website? 

Aaron [00:07:22] Hey local business owners. If you're ready to grow your business online without having to work more in your business. And you can spend more time on it. We created a free training on how to attract, qualify and convert more leads online. It's 38 minutes. It's gonna take a little bit of your time, but it's going to have a huge benefit. It's completely free. Make sure you click below on the description, whether you're on Facebook, whether you're on YouTube, whether you're on the podcast, everything's there that you need. Go grab the training now. 

Aaron [00:07:52] All right. Number, The second thing here is that it's kind of a piggyback or like a one A or one B, but it's know your numbers. And there's actually videos of what I was watching. And this guy knew his numbers so well that he was willing to float because he had the cash flow and because he knew his numbers to float 18 months. So he would acquire a lead knowing that on average, they're going to buy within 18 months. But he'll float that cash for 18 months knowing that, OK, if they spend one dollar, eventually they're going to spend exuberant amount of money with him. Another guy in the kind of like online world. That's kind of high end. Like Sam Evans, his model just completely in relevant to whatever else because are listening to is just interesting. He has a two thousand dollar course that he breaks even on and actually he loses a little bit of money, but then, once he gets somebody in there, he knows how many people it takes and he makes profit, 100 percent profit on a six thousand dollars course. So he knows, like, OK, if there's four people who come in, two of them are going to buy the six dollar course. So he'll spend, you know, two thousand dollars each to acquire people. No problem to buy that course knowing he's going to lose money. Like, that's the most expensive lead magnet I've ever even heard of. But he'll spend two thousand dollars to acquire that customer and break even just so he can sell them on a six thousand dollar course. And now he has a 40 probably like 80 million dollars this year or something. It's crazy. 

Christian [00:09:19] Wow! That is crazy. So do you think the business need to look into things like that? Whenever you know maybe you run the numbers and you know that, you know, on a straight up. 

Christian [00:09:34] I spend as much money on advertising. 

Christian [00:09:35] I'm not going to make, you know, enough to make it profitable. Is the next step figuring out. OK. So if I get enough people here, I can actually move these people towards like some other funnel or something to purchase this other thing that I offer. I mean, is that the next logical thing or is it more of a OK. Let's figure out how to streamline this to make more.

Aaron [00:09:59] Yeah. You should have a like, his very advance. We're talking millions and millions of dollars. And same thing for the guy whose cash flowing in for 18 months. I don't know very many people who can spend that much money in cash flow themselves and not make a cent for 18 months. Those are very successful businesses. So let's bring it back down to a local business. And not that local businesses are not successful. But the point is, we want to get paid. But, you know, you need to have, like, something that's gonna be profitable. So it's the question, again, with how much my willing to spend per lead and still be profitable because we want you to be profitable. You just may not be profitable until month two. But we're not saying much longer than that. Like, how can you bring in, like, Christian's water bottle. You bring in a person and then you know that, OK, by this point I'm going to be profitable. If it's going to make him wait six months, that I don't think very many people can ride that wave for that long. So you like six months is a long time to wait. And then if it fails. Now I've leveraged myself into a hole. So they think the question is, if you do this correctly, you're still going to do better than most people, which is how much am I willing to spend per lead and still be profitable. So, although I may be willing to spend 10, I'm not profitable there. I'm willing to spend seven. But Christian still only willing to spend five. So I still have a little wiggle room. And if I acquire them for seven, it's still profitable. So I think it needs to be a straight, streamlined approach to. OK. You want to at least make your money back because you need that cash flow to go back and reinvest in the business. So, and to make this work, it's all about that profitability. So you've got to know your internal numbers. Because for us, we're all pretty much all labor. I mean, we spend a lot of money on software, which I have found out. But it's also labor. So how much labor time does it take for you to deliver the product, like, Oh, it just cost me, Christian thinks, five dollars for the water bottle. But if he didn't factor in like labor and delivery and everything else, then like, oh, it's actually a seven dollar water bottle. So you got to figure out those numbers. I think service base is a little bit easier because it's just labor and you forget that part out. Product is probably equally as easy. But this calculator we're gonna show you here is literally for a service based business. ECom would probably be a little similar. Maybe we'll do another episode on that. We could talk to you guys about that with their sales accelerator. But this is for leads. So let's say Christian has a high end product, not a water bottle. Let's say he has a consulting company for Websites. 

Aaron [00:12:23] And it was for you to go through his program. It cost sixteen thousand dollars. 

Aaron [00:12:26] OK, Christian has direct costs of his labor. And let's just say software and people who are helping him on his team is six thousand dollars. So at that point, his client value here is ten thousand dollars because he's got direct costs. So he spent sixteen thousand and Christian stopped me here, too, because I know people are gonna be able to watch what we're doing on the calculator for YouTube, for the podcasts. Let's, I want to make sure it's super easy. So a sixteen thousand dollar product. He has six thousand dollars in expenses. His client value is ten thousand dollars a profit I guess. The kicker though, is that after that, Christian has all of these amazing templates that people want and he's gonna give them a let's just say a I don't know, like a landing page package. And it's 30 landing pages. OK? And he sells them that for thirty five hundred dollars. So now, Christian's lifetime value of this customer is thirteen thousand five hundred dollars. That's a lot of freakin money. OK. For this example, I don't think people are gonna make that payment over one time. So I just said, OK. How many different payments is it going to take Christian and make this? So let's just say for his sixteen thousand dollar consulting. 

Aaron [00:13:41] They make it over two payments and then the additional purchase is thirty five hundred dollars. So he has a total of three payments. 

Aaron [00:13:52] Monthly, first or the month one cash flow positive goal for this client. Again, you can put in a number here. The desired ROAS. So ROAS, as is like return on ad spend. So we want to make two hundred percent return on ad spend from this client. The month one cash flow positive goal for the client means that he has to make three thousand dollars, Three thousand thirty two. But three thousand dollars on that to be profitable or have the two hundred percent return. So, Again, working on this calculator, which we'll share the calculator with you guys. The desired client cost per acquisition means that you want to spend roughly sixteen hundred dollars, sixteen hundred and sixty six dollars for Christian to acquire customer. 

Aaron [00:14:40] OK. He can spend that much, hopefully you've gotten it for less than that, but you can spend up to sixteen hundred dollars to acquire this customer and still make double your money. Wow. I a that's. I mean, that's a lot of money. So now the next thing is figure out how many leads. I always just do a round number of 100. So for every 100 leads, how many sales can Christian have? And it's like, OK, well Christian has a high end ticket product. You should know how many closes that you have. So let's say Christian talks to one hundred people. Let's say seventy five of them are like, not ready to buy right now. 

Aaron [00:15:15] The other twenty five are qualified. Some of them don't have the money. Some of them aren't ready to buy now. But then this month he closes three sales. 

Aaron [00:15:23] So super low conversion rate. 

Aaron [00:15:26] He's got a lot of people in the pipeline. He's still talking to you. Let's not forget about the fact that those people are the ones who are going to buy it later just as a tidbit of information. 

Aaron [00:15:36] Eighty five percent of people, I think it's, no, it's like fifty five percent of people will never buy from you ever. And then, I would say another 20 or 30 percent of those people will buy in the next 90 days. And they might they may buy from you or somebody else. And then you've got a small percentage of people who are ready to buy now, which is why Christian has that sales of three dollars. So now each one of those leads is worth three hundred dollars. So those amounts a good chunk of money. He spent twenty five hundred dollars. That's a number you got to decide for yourself. We just put that number in there. His cost per lead was twenty five and then we try to get it for a little bit less. 

Aaron [00:16:17] But his cost per lead, It was twenty five dollars. To be able to be profitable and then we go down to the second part here about profitability. So this is where you got to know what you're looking at here. So the cost of product is sixteen thousand dollars. He spent twenty five hundred. But he had three sales. So he made forty five thousand five hundred dollars, which is a good chunk of money. There's a lot of other things you've got a factor in here, like actual gross profit and net profit. But technically, his return is absolutely insane. If you change it to a less high ticket item, let's just say we changed it to a five hundred dollar item. Direct costs should not be 6000, let's say it's 250. 

Aaron [00:17:10] OK. 

Aaron [00:17:11] He wants to acquire a customer now, so I change the cost of the product from sixteen thousand to five hundred. And he has 50 percent margins. I changed it now to two hundred fifty dollars. And woops, they don't have an additional purchase of that. I put it thirty five hundred additional purchase plus eight thousand. 

Aaron [00:17:26] Oops. Lifetime value of that customer's twelve fifty, cash flow positive client per month. So he's only going to make eighty two dollars off of it. So now he's got to figure out, OK, I got to get a higher conversion rate. If it's five hundred dollars, you should have a higher conversion rate. And then we'll go into questions here in a second. But let's say. Thirty people. OK. Now we know. All right, cool. I can still make a decent amount of money. OK. So we went over a lot here. I did a lot of talking for the podcast part and the video. You may have seen some numbers and you'll be to play around with this yourself. But what questions as you're going through that Christian? I know that dish probably like, oh, gosh, this is. Like it's a lie, right? It's just. But as you go in there and play around like I was doing this earlier with Ryan, it's a lot of playing around with this, the webinar app you don't necessarily need, but, there's a lot of playing around with your numbers, but if you do know them, then it makes it very easy. You'll only want to mess with the white numbers right here. Not the yellow, but did following along or seeing those numbers change. Like did those add up for you though, Christian? 

Christian [00:18:36] Yeah. I mean, I think the only, I would say my biggest question or the biggest unknown would be the total ad spend. 

Aaron [00:18:47] Well, I guess it depends on how much. So, like, if you're desire, like if Christian wanted to make let's say you wanted to make five hundred percent return. 

Aaron [00:18:55] OK, then, you know that. All right. My cost requisition is sixteen, forty seven. That's why I want to get them for. OK. I know that I need more leads to make that happen. So this is saying that I've got to get a cost per lead for twenty five dollars. Probably doable, but if you could drop it to fifteen hundred. 

Aaron [00:19:17] Can you still get a lead for 15 dollars and still be profitable?

Aaron [00:19:21] Yes, you can. So you can play around with your numbers and figure out, OK, for every hundred leads I'm going to close 30 deals. Then my cost per lead is worth seventy five dollars. 

Christian [00:19:33] So basically the ads spend. 

Christian [00:19:38] You want to make sure that you match the desired client CPA with the desired lead CPA? 

Aaron [00:19:43] So desired client cost per acquisition is like how much I want to acquire the customer for? It's how much I can spend to get the customer to give me the money. 

Aaron [00:19:52] The cost per lead is how much you want to spend to acquire, to get a lead. 

Aaron [00:19:59] So knowing that you're going to get 20 sales. 

Aaron [00:20:02] So let's say for the cost per lead is 15 dollars and you want a hundred leads, you're going to spend fifteen hundred dollars on ad spend. Right? OK. From that, you know that you want, you're gonna get 20 sales. Your cost per value per lead is fifty dollars, so you can technically spend up to 50 dollars to acquire that lead. 

Christian [00:20:26] Got it. 

Aaron [00:20:27] It's, I know it's a lot. 

Aaron [00:20:32] I guess the whole point from this is that you this will help you figure out the numbers of your desired amount of money that you want to spend or that you want to make. Let's say, again, 500 percent is a lot. Let's just say you just wanted to double your money. How much could you spend to acquire that customer? And then what's your total goal? So, like, if Christian wants to make ten thousand dollars. 

Aaron [00:20:53] OK? How much does he need to spend to be profitable or to get the amount of leads that he needs and still be profitable? This number needs to change to fifteen hundred, which is the profitability. 

Aaron [00:21:07] He still makes eighty five hundred dollars so from a five hundred dollar product. And you make 20 sales. You've got one hundred leads, I guess, that came in and you get 20 sales and your product is five hundred dollars. You still after everything you still made. Eighty four., Eighty five huundred dollars. 

Aaron [00:21:24] Which instead of making 200 percent profit. You made five hundred sixty six. So to your point Christian, OK, what if I drop my ad spend. Now I don't need to spend fifteen hundred because my goal is to make two hundred. So here we go. 

Aaron [00:21:39] Cost per lead would have to be 750. And I know I'm going have less leads. OK, so I only have to have a 10 percent close rate to still be almost at 200 percent profitability for you. So I've got a hundred leads. I convert 10 of them and I can spend seven hundred fifty dollars to acquire those customers and I can still make thirty five hundred dollars. 

Aaron [00:22:06] That's I mean, that's per month. I guess we're looking at this per month. But if you wanted to make more money, you're going to have to spend more money in advertising. But realistically, if you were selling your five hundred dollar package, whatever it was, you could spend seven hundred and fifty dollars in ads. Assuming these numbers are all correct and you had a good profit margin. 

Aaron [00:22:24] He could spend seven hundred fifty dollars in ads and make thirty five hundred dollars profit from it. Just because you know that your cost of product is five hundred dollars direct costs or two fifty and then you know that after they purchase at one time they're gonna spend another thousand with you. So basically every time a new customer comes in there was twelve hundred dollars for you. 

Aaron [00:22:45] So I know there was a lot. 

Aaron [00:22:47] It's something to play around with it. It's there. Maybe we'll have a little like note section up here, like, OK. This is the things to play around with. But I guess for the video and for us here is that. 

Aaron [00:23:00] Your numbers are gonna change. 

Aaron [00:23:01] Just change the white boxes, play around with things, figure out, OK. How much should I spend on advertising? How much should I spend to acquire? Is like, what's your goal? What's what are you trying to hit and what are your numbers? But this isn't a and all be on in the sense that you do this once and then you're done. It's like, this you need constantly looking at it. How can you become more efficient? Like how can my direct costs go down from two fifty to two hundred? And then how does that affect everything? So this is like a good starting point to give you, I guess a goal to hit towards your numbers. 

Aaron [00:23:32] Somewhat helpful? Interesting? 

Christian [00:23:35] Yeah. Absolutely.

Aaron [00:23:37] I think it's more so the fact that it's trying to get you versus Christian saying I'm going to sell these water bottles and I want to sell a thousand of them. And you have no other numbers to base it off of, versus. OK, I've plugged everything in and now I know that. OK. This is how much advertising spend I should spend on it. 

Aaron [00:24:00] bueno clear ish? 

Christian [00:24:01] Clear as mud. 

Aaron [00:24:03] Clear as mud as they say. So the calculator will definitely be in the show notes and in the description for YouTube. Make sure you guys go grab that play around with it. Make sure that you hit share or you copy this and don't edit the one that we have because that will just mess it up. So make sure you share more. Give the description for that. 

Aaron [00:24:22] All right. Thank you guys so much for listening in to another episode of Marketing Natives. I know this was a different episode, but it's a constant question. And honestly, I want to use this video for future reference and how we can get better, too, for explaining our calculator. But, I think you'll also be helpful for you to understand your numbers and where to plug it in. So hopefully you've got a lot of value out of that. If you've been listening for a while, please make sure to leave us an honest rating review on Apple podcasts. And also, if you are not subscribed, please make sure you subscribe whether it's on Apple podcast or any podcast platform or YouTube. We put out weekly content to help you guys grow your business online for local businesses. And also, as just a side note, if you leave us a review on Apple podcast, we will give you a shout out on the podcast. 

Aaron [00:25:07] All right see you guys have a great week. 

Narrator [00:25:08] The Marketing Natives podcast is a production of BitBranding. 

More Episodes