How Much Should You Spend to Capture an Email Address?

It depends on how much each email address (or lead) is worth to you. You can compute that based on how much each new customer (or order) is “worth” to you.

First, consider your “profit per sale” and your objectives:

• Do you have to make a profit on the initial sale? If so, you’ll need to factor that into your email capture and Lead Generation plan.
• Can you bring in new customers at breakeven or at a loss? That may make sense for you if you have repeat or monthly sales, where each customer can become profitable over time.

Here’s a look at a simple “Breakeven Analysis”:

Step one: “Gross Profit Per Sale”

Take your Purchase Price minus your Direct Costs of completing one sale. In Figure 5.4 below, the product or service sells for $790. We have $190 of direct costs (for purchasing or manufacturing, packaging, etc.), leaving us with $600 gross profit on every sale.

If you’re selling a service, and salaried staff will close the sale and deliver the service, there may not be any direct costs of closing and fulfilling one more sale. If you offer a commission per sale, that commission would be included in your direct costs.

In this example, you may be willing to spend the entire $600 “gross profit per sale” to bring in a customer – if you expect future sales. Or you may need to add some profit into your “Direct costs.”

Step two: “Breakeven (BE) Quantity”

Take the total cost of your proposed Lead Generation program. Divide it by your “Gross Profit Per Sale” to see how many SALES you need to cover the cost of the program. That’s “Breakeven Quantity.”

• In the example above, we’re looking at a $15,000 program. At $600 gross profit per sale, you’d need to bring in 25 sales to cover the marketing costs.

Since you’re generating leads, you need to look at your “Conversion Rate” at each step in your Sales Process. That will help you “work backwards” from the number of sales you need, to determine the number of leads you need.

In Figure 5.5 below, we need 25 sales to Breakeven (C).

• But we have to generate leads first, so we need to know our Conversion Rate. In the example, 30% of leads have converted to orders or customers in the past.
• If you’re new to Lead Generation, you may want to use 20% Conversion or less. Conversion Rate can vary from 1% for web Offers to 30% for well-qualified leads.
• For 25 sales divided by .30 (30% Conversion Rate) = 83 (D). We need 83 leads from the initial Lead Generation effort.
• That means our Cost/Lead = $15,000 / 83 = $180. If we spend $180 per lead, we will just breakeven by covering our marketing cost.

Step three:  Breakeven (BE) lead response rate

Is 83 leads a reasonable number of leads to expect?

• Our Lead Generation program reached 5000 names. Take 83 leads divided by 5,000 = Breakeven LEAD response rate of 1.66%.

Have your past Lead Generation efforts come close to 1.66% response? If so, this program may make sense.

What if your Sales Process has multiple steps?

You should calculate the Conversion Rate at each step in your process. If you’re driving website traffic, you might have these steps:

• Let’s say you’re using Google pay-per-click Ads. You’re generating clicks at an average cost of $2 per click, and you drove 5000 clicks this month that cost you $10,000.
• About 3% of those website visitors filled out your form to get your Offer. So 3% of 5,000 visitors = 150 “step one” leads.
• Of the 150 leads, 30% took the next step (came in to your facility, emailed or called to talk to a rep, requested a price quote or proposal, etc.). So you have 45 “step two” leads.
• Of the 45, you closed 33% for 15 sales. So you spent $10,000 to drive 15 sales or $667 per sale.

If your gross profit per sale is $600 and you need to breakeven or make a profit on each sale, this program wouldn’t be profitable for you.

To help the program become profitable, you could:

 Reduce your cost per click in Google Ads (the easiest and fastest solution to test in this case)

• Improve your “step one” Offer or Landing Page to try to improve that 3% Conversion
• Improve your “step two” process to try to improve that 30% Conversion (which might be unlikely)
• Raise your purchase price.

If your gross profit per sale is $600 and you know you’ll have additional sales per customer, you may be fine with spending $667 per sale.

This is the type of financial analysis to do before you commit to a new Lead Generation program. This will help you determine what types of Offers – and Lead Generation programs — make financial sense.

If generating leads is key, your team should live and breathe Lead Generation

If the main objective of your website is to generate leads, you’re in the Lead Generation business. It’s time for you and your marketing team to become experts in Lead Generation. Knowing how much you can pay for a lead is the first step.