Knowing what an enquiry is worth can be really helpful when deciding if your marketing is working. It can help you make better business decisions.
With some forms of marketing including Google Adwords (my field) you can get good data back on what you are paying, on average, for each new enquiry that comes in to your business.
I often speak to potential clients about what they’ll end up paying per enquiry. Just this past week I’ve had one person suggest that the price per enquiry is too high and a competitor suggest that they would be happy to pay 2.5x my estimate for the same enquiry. Despite them both working in the same industry and presumably charging clients about the same fees. This is a pretty big discrepancy in what an enquiry is worth!
Knowing what an enquiry is worth is a useful metric when trying to work out if your marketing is working. Some forms of marketing like networking don’t use much cash but they use a lot more time. For those types of marketing you need to look at how long you spend and what your time is worth to work out an accurate cost per enquiry.
Working It Out
To give you a rough idea a “back of napkin” calculation for what an enquiry should be worth to your business would be:
[Good cost per enquiry] =
[average lifetime value for that type of client] x [what commission you would be happy to pay to get that client] x [what percentage of enquiries you normally convert in to paying clients]
A lot of service based businesses are happy to pay 25% of what they make from a client as a referral fee or commission. And a lot of businesses convert about 1 in 3 enquiries to paying clients. So based on this, and lets say a client is worth £1,000 per year to you and stays for 3 years on average then your numbers would be:
[lifetime value of £3,000] x [25% commission to get the client] x [33% conversion rate]
So in that example if you were running a campaign that generated enquiries at £250 per enquiry and converting 1 in 3 then you would be doing okay. On average each time you spend £750 you would get a client worth £3,000. So you 4x your money.
Why It Matters
Obviously you want the enquiries to be as cheap as possible. But for some forms of marketing, Google Adwords in particular there is a trade-off between the maximum volume of enquiries you can generate and the cost per enquiry. So a 20% increase in what you are willing to pay per enquiry might result in 50% more enquiries. Then you tend to reach a point where it goes the other way once you reach a high ad position in google, at that point a 20% increase in cost per enquiry may only net you 5% more enquiries.
SEO on the other hand can potentially work the opposite way, being first on the page brings in a lot more clicks than being second or third. So you may end up paying less per enquiry if you can get there because you get so many more visitors to your site. Likewise brand building and PR probably have a minimum level of coverage you need to get to in order to be top of people’s mind.