How Much Is a Lead Worth?
Marketing is an art and a science.
A lot of time is spent on the art (sales copy, offers, targeting, etc.), but not enough time is spent on the science/numbers.
You can have textbook perfect sales copy and offer, but if you are paying more to acquire customer than you make on that customer, then you are losing the game.
But the cool part of the marketing game is that if you know your numbers, you can know exactly how much you can spend on a lead to win the game in the long run.
This is called your Expected Profit Per Lead (EPPL).
If your Expected Profit Per Lead > Cost Per Lead, then you will win the game in the long run.
Below are the steps to calculate your Expected Profit Per Lead, but if you want to skip the math and just want the answer, use our EPPL Calculator here:https://metabolicreboot.typeform.com/to/AI7x4t
Step 1: Numbers You Need to Know
(If you don’t know them exactly, you can use an estimate)
- # of members you currently have
- # of members lost/month on average
- $ value of your average monthly membership (Average Membership Value)
- $ value of your front end offer (FEO Value)
- % of leads you close to a FEO (FEO Close %)
- % of FEOs you close to a membership (Membership Close %)
- Profit margin
You’ll probably want a pen and paper to follow along with the steps.
- 150 current members
- 5 members lost/month
- $150/month average membership
- $100 front end offer
- 33% FEO close
- 40% member close
- 15% profit margin
Step 2: Calculate Your Average Member Lifespan
Your Average Member Lifespan is how long an average member will be a member.
Average Member Lifespan= # of current members ÷ # of members you lose per month on average
Average Member Lifespan= 150 members ÷ 5 members lost/month= 30 months
Step 3: Calculate Your Member Lifetime Value
Your Member Lifetime Value is the average dollar value a member over their lifespan.
Member Lifetime Value= Average Member Lifespan x Average Membership Value
Member Lifetime Value= 30 months x $150/month= $4500
Step 4: Calculate Your Lead to Member Close %
Your Lead to Member Closing % is the percentage of leads that become members of your gym.
Lead to Member Close %= FEO Close % x Member Close %
Lead to Member Close %= .33 FEO close x .40 member close= .132
Step 5: Calculate Your Expected Lead Lifetime Value
Your Expected Lead Lifetime Value is the value of a lead, taking into account the probabilities that they become a FEO and/or member
Expected Lead Lifetime Value= (FEO Close % x FEO Value) + (Lead to Member Close % x Member Lifetime Value)
Expected Lead Lifetime Value= (.33 x $100) + (.132 x $4500)= $627
Step 6: Calculate Your Expected Profit Per Lead
Your Expected Profit Per Lead is how much you will make per lead after operating expenses.
Expected Profit Per Lead= Profit Margin x Expected Lead Lifetime Value
Expected Profit Per Lead= .15 x $627= $94.05
How to Apply Your Expected Profit Per Lead Number
Now that you know your EPPL, your goal with any paid marketing efforts should be to acquire leads at a cost lower than your EPPL.