Currently viewing the tag: "customer acquisition"
One of the conversations I have often with MPS’s is getting them to understand the cost of getting a new lead in the managed services business. Expectations vary across the board quite wildly:
Some believe a lead shouldn’t cost more than $25.
Others believe $2500 is ok, because they close 100% of the people they get in front of (oh yes…I hear this one. I also hear that you’ve NEVER lost a client).
Both of these expectations are way off. You WILL NOT acquire leads that cheaply in this industry, and you WILL NOT close 100% of the prospects you get in front of. This is an important thing for you to get your hands around, as you can’t possibly plan on building a scalable business without understanding what a normal sales and marketing pipeline looks like.
So what does it cost to acquire new leads and customers in the managed services business? My experience in the business – which includes having spent well into the seven figures on sales and marketing – has consistently resulted in the following:
New leads: $175-275 per lead
New customers: $1,500-2500 per customer
A report I read recently suggests that the average cost per lead for a broad swath of industries is $143-373 per lead, so I don’t think my experience is far off.
Keep in mind, that this is a measure of leads/customers per ACTIVE marketing dollar I am spending, as in money spent on actual campaigns, advertisements, direct mail, telesales reps, etc. This DOES NOT include the dollars that I spent on internal marketing personnel, tools, etc.
The good news for everyone is that these are perfectly fine numbers for building a great business in this industry! Customers in this industry are very valuable, so these numbers clearly work in your business model.
The problems comes when you believe that you should be acquiring leads and customers much more cheaply than this. If you fool yourself, you will not make the necessary investment in marketing and sales to acquire customers as quickly as your competition. Believe me when I tell you that there are now plenty of sophisticated operators in the managed services business that will gladly spend these amounts all day long, and are eating your market share for lunch.
Here are common ways I hear MSP’s fool themselves:
- I grow my business 100% from referrals, so leads don’t cost me anything. Actually, they are costing you a ton. You are not growing nearly as quickly as you could, and your “non-investment” model will put a cap on your total growth potential. Every business has a cost of acquiring new leads and customers – yours is not the exception.
- I got three leads and didn’t close a deal, the leads were bad. Perhaps they were “bad”, if there is such a thing. Statistically, you will probably only sell about 1 out of 10 leads you get. That’s not “bad”, that’s the normal sales pipeline. If your numbers are worse than 1 out of 10, it’s much more likely that you need sales training than it is that all of those leads are “bad”…FYI.
- I closed the customer, but they only did $700 in business with us this month, so it wasn’t worth it. Again, you probably need more sales training and a better plan to follow up with these customers. Not everyone signs a big recurring revenue contract the day they meet you – put a follow up plan in place and build trust over time!
In the direct marketing industry, they teach you that knowing your cost per lead and cost per customer are two of the fundamental numbers you must understand about your business and your industry. Otherwise, you will never really know whether you are on track or not versus the competition.
Same goes for the managed services industry – know your numbers if you want to compete!
Mike
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