Do you really know how much a customer is worth to you over the long haul? Probably not – not unless you track everything.
When a lead enters your funnel, you need to track a lot more than just the instant revenue of each sale compared to the price you paid for the lead. There are a lot of other factors at work, such as the cost of invalid leads, and each converted customer’s expected Life Time Value (LTV). If you focus purely on making the sale and moving on, then you are probably leaving a lot of money on the table.
On paper, the cost of converting a single lead might look very profitable. But unless you track and analyse the whole picture, you’ll never know for sure.
The Impact of Bad Leads on Long-Term Profitability
I mentioned tracking invalid leads. This is very important. If you don’t track them, you can’t remove them – and if you’re not removing them, they’ll be having a negative impact on your bottom line. Tracking where and how your conversions are happening, and then measuring the Life Time Value that comes from each, is the only way you can start to successfully scale your campaigns, and doing it right could double or even triple your profits.
For example, over time, you might find that the one traffic source that you thought was really working for you (because of the high number of sales), was actually generating you a very low or negative income. How? Because the low LTV of the leads and the high cost of invalid leads are eating away at your profits.
Let’s flip that on its head. You probably know already that some companies operate on a loss initially. In other words, they spend more converting a lead than they get from that first sale. However, because they track what happens to that customer long-term, these companies know that they will more than make up for this in back end sales and lifetime value not directly associated with the initial sale.
‘Looking at the big picture and the individual picture at the same time is key’
It’s rarely a case of one or the other. If you track everything, but don’t count the bad leads, then your tracking will be off. On the flip side, if you only count the bad leads and cut them out, but don’t track how your valid leads perform in the long term, you’re practically walking away from free money.
It may seem a little too simplistic, but these fundamental basics of performance marketing are what the less successful companies are most often violating. And they’re what the most successful companies are exploiting.
Furthermore, the price of sticking to these rules will compound over time as you scale up. The more you expand your upsell and cross-selling opportunities, the more these two metrics become vital. If your tracking is off, most likely you will struggle to find where the source of gold for your business is coming from.
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