Marketers are as good as the metrics they are tracking and measuring. There is a lot of data to analyze the effectiveness of a lead generation funnel. However, focusing too much on the metrics can be detrimental to the marketer.
Metrics and data will not be useful unless they are presented in the right context and offer valuable information about your leads. How do you choose the correct metrics? Are you precisely tracking the effectiveness of all the stages of your lead generation funnel?
There are different types of metrics that you can follow, and choosing a few of them is almost always the best idea.
These are some of the most important metric groups to measure the performance of your lead generation funnel:
- Interaction metrics: how do your leads respond to your campaigns and your content? Interaction metrics provide information about how people interact with content and include metrics such as visits to your website, click-through rates or unsubscription rate. The interaction metrics are relevant throughout the funnel, but they are only indicators of success.
- Performance metrics: performance metrics are excellent for evaluating the effectiveness of your funnel as a whole. They include several metrics, such as qualified leads for marketing, sales opportunities and the duration of the sales cycle.
- ROI metrics: are the statistics and the value for money that your marketing efforts have generated. It includes metrics such as the customer acquisition cost, the conversion rate, the customer’s life value and the total income generated.
Of all the metrics you can measure for your funnel, these are the KPIs that normally provide the most information and the most useful in optimizing the lead generation funnel.
1. Cost Per Acquisition (CPA)
The cost per acquisition (CPA) is the most important metric to determine the return on investment. Clicks and views can be interesting, but if the campaign is not generating revenue, then it is not successful for your business.
The metric is used to measure the cost of acquiring a single customer that buys through a specific campaign or channel. It is just another way of saying “cost per sale”.
How do you calculate Cost Per Acquisition?
Fortunately, calculating your CPA is a relatively simple task. The CPA can be calculated by dividing all the costs generated in the customer acquisition (marketing expenses) by the number of customers acquired during the period in which the cost was generated.
CPA = (Total Customer Acquisition Cost / Total new customers acquired)
Let’s take a look at a simple example. If a company invested $ 1,000 to acquire 100 new customers, your CPA would be $ 10, which means that you invested $ 10 to acquire each new customer.
2. Customer Lifetime Value (CLV)
You can not calculate the profitability of your marketing campaigns without knowing how much money you will get for each new customer generated by the campaigns. The best digital marketing metric to calculate this is the Customer Lifetime Value (CLV). The CLV is used to project the income generated by a single customer throughout its useful life for your business.
CLV is simply the average profit of all your customers. A growing CLV means that your lead generation funnel is not only converting leads into customers but is also generating higher-value customers. The lead generation funnels play a fundamental role in the CLV of each customer, since the nurturing or qualification process of the lead plays a key role in generating greater leads for your sales team.
How do you calculate Customer Lifetime Value?
The Customer Lifetime Value takes into account the average purchase size of each customer into account, the number of purchases made by a customer in a year and the average profit margins to determine an yearly profit margin average per customer.
Then, the yearly profit margin is used in a simple formula that also uses the customer retention rate to determine the lifetime value of each customer that your lead generation funnel is contributing.
Average purchase x Number of purchases per year x Average profit margin % = Yearly profit margin average per customer
CLV = Yearly profit margin average per customer x (Customer retention rate / 1 + Rate of discount – Customer retention rate)
3. Conversion rate of funnel stages
The whole purpose of your lead generation funnel is to attract high value customers to your business. Drive traffic to your website through multiple channels, collecting information from visitors and converting them into leads.
Lead Generation Funnel or Buyer Journey has three basic stages, which can then be divided into additional stages according to your strategy:
Awareness > Consideration > Decision
As visitors and leads move through the funnel, a percentage of them will leave, without reaching the sales stage. They may not have been interested in your product, but they did have an interest in the marketing materials you offered them. They may prefer to stay in the “Awareness” stage longer, receiving and interacting with the content you send them from time to time.
That is normal and expected. But you must track the leads through your funnel and see if your rates are improving over time or not.
It is important to remember that the conversion rates of your lead generation funnel depend to a large extent on the quality of the contacts that are added to the system. If you capture more leads, you can generate more sales but lower conversion rates in each stage of your funnel. If we focus on getting fewer leads, but of higher quality, the conversion rates along the funnel will be higher.
Each business is different and it is complicated to establish a reference for each stage of the funnel. Focus on continually improving conversion rates for each hop between stages, and work to improve the quality of your leads and the marketing materials that you deliver along the Buyer Journey, and you will gradually see improvements in the progression of the funnel in each level.
4. Conversion rate per channel
Every digital marketing professional knows the importance of conversion rates. However, in generating demand, it is necessary to take in account that leads may come from a large number of channels:
- Social networks
- Inbound marketing
- Sales Force / Outbound
- Email marketing
Each of these channels can have marketing ratios, costs and budgets that are very different from each other. To optimize your lead generation funnel as a whole, you must optimize each channel and allocate your budget in a manner adjusted to the highest performance channels.
Conversion rate per channel would allow us to see which channels do not work and which ones we should focus our attention, since they provide higher closing rates and better results. Without tracking your conversion rates by channel, it’s easy to waste resources and budgets, and make the mistake of investing in channels that offer worse results.
5. Duration of marketing cycle
How long does it take for your leads to pass through your conversion funnel? This can vary greatly depending on the quality of the leads that enter the funnel. It is likely that depending on the channel they come from, their duration in the funnel varies.
The goal should be to reduce the amount of time a lead spends in your funnel. The faster you get leads and convert them into customers, the more revenue you can generate.
Keeping track of the time until the lead converts into sales such as Sales Qualified Leads (SQL), or the time until a sale closes, can provide insight into the alignment between your marketing and sales teams.
The success of a good conversion funnel is related to work and time
The optimization of the lead generation funnel is based on time and continuous improvement. Progress can be slow, but small improvements can generate exponential increases in revenue over time. By identifying the most important metrics to follow, such as those described in this post, you can create a solid methodology for continuous funnel optimization, having a real impact on your business.