How many leads do you really need to reach your target, and how much are you willing to invest to get there?

Let’s say you want to increase your business revenue by $2 million this year. To reach this goal you know you need more sales, which means more leads, which means more (or better) advertising to reach potential buyers. 

But how many leads do you really need to hit that target? And how much do you need to invest in your advertising to get there? 

To find the answers you seek, you just need to do a little math. There are three questions that need to be considered: 

  1. What is the average lifetime value of a customer?
  2. How many leads are needed to convert a sale - what is your average lead conversion rate? 
  3. What is the most you are willing to pay for each lead, based on this data? 

Let’s dive into these questions to help you figure out the math behind your marketing plan and calculate the ad spend needed to reach your goals.

1. What is the average lifetime value of your customers?

An essential figure to know when determining your marketing budget is the average lifetime value of your customers. 

This goes beyond just your average sale value to look at the bigger picture of how much a customer is expected to spend with your business over the course of their relationship with you. It takes into account how much this average customer spends, and how many times, to calculate the long-term value to your business. . 

“Knowing the average lifetime value can make a huge difference to what a profitable cost per lead looks like, but is often overlooked.”

Josh Sexton, Digital Performance Director, Sprocket Digital 

You may find that an average sale is only $200-500, but in the long run returning customers could spend $2000-3000 if they’ve had a positive experience with your business, and have a reason to keep coming back.

To calculate your average customer lifetime value, there are two parts to the equation:

Part One: Your Average Customer Value

  1. Work out your average purchase value: Divide your company’s total revenue over the last 12 months by the number of purchases over the same period
  2. Work out your average purchase frequency: Divide the number of purchases by the number of unique customers who made purchases within the last 12 months
  3. Multiply your average purchase value by your average purchase frequency to get your average customer value

Part Two: Your Average Customer Lifetime Value

  1. Work out your average customer lifespan: What is the average number of years that a customer continues to purchase from you? 
  2. Multiply this by your average customer value (from part one), to get your average customer lifetime value. 

This gives you the total amount that you can expect to earn from an average customer over their lifetime with you. 

Now you know how much a customer is worth to your business, how much do you need to spend to acquire them?

2. What is your average lead conversion rate?

It’s easy to skim the top line of your data and say “Great, if our average sale value is $2000, we only need to make 1000 sales this year to hit our target”. But how many leads do you need to make that many sales? 

It’s unlikely that you’ll close 100% of your leads - some will lose interest, some will go to a competitor, and some will take months or years to convert. You need to work out what your lead conversion rate is, so you know how many leads you need to acquire to reach your sales goals. 

How many leads did your business generate in the last month, and how many sales did you close? What about the month before? Gather as much recent data as you can for all channels - email leads, calls to sales reps, and social media enquiries.  

Now divide the number of sales per month by the number of leads per month, and multiply that by 100 to get your conversion percentage. 

For example, last month you might have brought in 150 leads through Facebook and Google advertising. Your sales team managed to close 32 of those leads, turning them into sales. Therefore, your lead conversion rate would be 21% (32 divided by 50 equals 0.21, multiplied by 100 equals 21%). 

How many leads do you need to reach your sales goal? 

Now you understand how many of your leads convert into sales, you can work out how many more leads you need to reach your bigger sales goal. Simply divide the number of sales you need to generate by your conversion rate, and you’ll have the number of leads that are required to reach it. 

For example, if you’re aiming for 50 sales next month, you’d need 238 leads (50 divided by 0.21 equals 238).

3. How Much Are You Willing To Pay Per Lead?

“If I had an unlimited magic mystery bag of (relevant) leads in front of me, and I could pull them out one by one and sell them to you, what is the most you would be willing to pay me for each one?”

Josh Sexton, Digital Performance Director, Sprocket Digital

How much is every phone call, every email enquiry, and every form submission worth to you, now you know the potential lifetime value of every customer and how many leads you need to acquire that one valuable customer? 

Finally, you can create an accurate marketing budget based on the goals you want to reach, and what it will truly take to get there. 

Of course, there is a way to reduce your cost per lead and cost per acquisition, while maximising the efficiency of your budget, and that’s through conversion rate optimisation. 

Conversion rate optimisation can take place on both a technical level and a creative level - everything from the words in your call to action to the placement of a button on your landing page can make a difference to your conversion rate.

“Conversion rates should always be looked at as part of the wider strategy, as it will lead to increased efficiency when the budget scales over time. This will have a compounding effect on the total ROI generated as the business grows.” 

Josh Sexton, Digital Performance Director, Sprocket Digital
  • At Sprocket Digital, we’re experienced at guiding our clients through this process to help them scale their business sustainably and efficiently, while getting them the valuable leads they need.

Are you ready to grow your business? Call the team at Sprocket today for expert digital marketing support.

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    Sheree Palmer ★★★★★ Great Team to work with, communication is great and they are actively engaged with working with you.Glenn Walton ★★★★★ Good people with excerlent skills, lead generation and communication. Thanks Team. Their performance dashboard is also awesome 👌Kate Mayo ★★★★★ I have been working with Sprocket for a few months and am very happy that we decided to work together. A friendly team, very responsive and thorough. Harry has really taken the time to understand our business and develop strategies to help us grow.NZ-Online-Pharmacy ★★★★★ The results speak for themselves. Our website has been lifted to the next level, in both hits & resulting translations into physical orders. Thanks Kieran & Team!Ketaki Rasmussen ★★★★★ Sprocket has experts who can take your digital marketing to the next level, and you get personalised service with a dedicated account manager to help you achieve growth. Great to deal with.Andrew Tuioti ★★★★★ Super pro-active group of professionals. 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Our account manager, Sophie has been very helpful in making us understand the process at the same time took the time to understand our needs and understood exactly what would help achieve our business goals.Highly recommend!NZ Health Food Company ★★★★★ We've been working with Sprocket Digital for a few months now and are seeing really good results. Dan and the team are great to work with and are constantly looking for opportunities to help us grow our ecommerce platform. Great communication and nothing is ever a hassle.Dylan Carter ★★★★★ Sprocket Digital is the real deal! They have turned our company around in our initial month of working with them and I could not recommend them more.The team is super helpful always making the time to have meetings with us and answer our endless amounts of questions.We are looking forwarded to working with them for the long term!Gabi Metz ★★★★★ Working with Sprocket has been so easy! Like a weight has been lifted off our shoulders. And the results so far have been fantastic!Andrina Shieffelbein ★★★★★ Sprocket has been amazing for my small buisness! Can't recommend enough if you want results from your advertising!Daisuke Kirihara ★★★★★ I have been working with Sprocket for about 6 months, and the team has delivered outstanding results, giving us one of the best return for every dollar we spent through them. I have worked with digital agencies across Asia, Europe, and NZ over 15 years, but the ROI improvement I have seen Sophie and the team deliver is best in class. If you are a result-focused marketer who needs an agency to get you results, try letting them run your campaign. It worked great for us.Speednation ★★★★★ Outstanding, the team at Sprocket have been tremendous, and taken our store to the next level. Ronnie and the team are on to it and get things done quickly to a high standard. If you are looking for a marketing team, this is your one stop shop for all your marketing needs!Team at Speednation.co.nzLani Wards ★★★★★ We own Better to Give . We have only been working with Harry at Sprocket for a few months, but as a brand new E-Comm start up we knew we needed someone who could build our sales with fast and effective campaigns. We are very happy with our progress thus far and look forward to a long prosperous working relationship.Megan Blincoe ★★★★★ We are a new Client of Sprocket and I cannot fault them! Especially Ethan, he has been so available and clearly knows what he's talking about. He has been very patient with us and has thoroughly updated and explained every part of the set up and progress to date. Highly recommend using Sprocket DigitalLily Richards ★★★★★ I really enjoy working with Sprocket. I've worked with them on two different projects now; they're data driven, great communicators & listeners as well as extremely good value/above board. They helped us improve our Google quality and conversions by nearly double. I would definitely recommend them.Beautiful You Holidays ★★★★★ Covid lockdowns meant complete operational shut down for our small NZ owned business. However, in the last few months we have finally got back up and running again with the help from Josh and his Sprocket team.Their understanding, resources and communication has been unwavering in this process and we have seen measurable results month on month. Trust plays a big role in digital marketing and I believe their formula is full proof.Sprocket has had a big role to play in getting our small business back on it's feet. I couldn't recommend this company enough!Matt Boylan ★★★★★ This is the second time I have used Sprocket Digital in my role as Marketing Manager for small to medium sized businesses. Given our marketing team is very small and we don't have a specific digital marketing resource internally, it gives me peace of mind knowing that all our digital needs are being outsourced to Sprocket. On both occasions of working with Sprocket, the team have very quickly got up to speed on our business. The setup is seamless and my regular meetings with the team help to identify opportunities for us to leverage. The entire team are really knowledgeable and down to earth even though they have some very experienced people working on our account. I would highly recommend Sprocket to any other business who wants expert advice and guidance on their digital marketing with an accessible and down to earth approach.Nudi Point ★★★★★ FINALLY... a digital marketing company that actually gets the results. This is the 5th business I have dealt with in the last 7 years - and the only business that has proven results. Our sales have increased hugely and it's only been 1 month. Harry is amazing to work with and the whole team at Sprocket Digital know exactly what they're doing. The results speak for themselves. Highly recommend!cam scott ★★★★★ So far all of my requests from Sprocket Digital have been handled very professionally and timely. I am really enjoying the level of communication and how easily approachable the team is.Meelee Joe ★★★★★ Great working with the team at Sprocket Digital! We found the company friendly, accomodating, and they helped us to develop our knowledge of the business analyticsCuddle Me Baby Ltd New Zealand ★★★★★ We love working with the Team at Sprocket Digital. They really take a personal interest in your business and come up with some fantastic marketing ideas, that have seen our sales grow in just the short time we have been working together. 100% trustworthy and love that they are NZ based and only a phone call away when you need them.Kiwi Duvets Ltd ★★★★★ We've found Ronnie, Dan and the team at Sprocket to be great so far. Onboarding process was nice and easy, and they have been available at any time to help us with any queries we've had. We're pleased with the results so far and the growth we've seen, and look forward to continuing to grow both the business and our relationship!Phillip Wards ★★★★★ Harry and the team at Sprocket have done an amazing job for our start up company. It's been an absolute pleasure having them onboard, pushing our sales and helping make our business what it is today, this has only taken one month. Looking forward to many years to come.Thanks teamGavin Sheppard ★★★★★ Ronnie and the team at Sprocket have done an awesome job of understanding what our business needs, and helping to develop the digital marketing strategy for TankMate.Maggie from Astound Smile ★★★★★ We have worked with a couple of other agencies that did not deliver and I'm impressed with the level of service, support & results we get from Sprocket. Within a few weeks of working with Sprocket, we can see immediate improvement on our sales. Harry and the team has taken the time to understand our business and continue to work on delivering results. We look forward to continue working with Sprocket to grow our business. If you are looking for a result-focused agency, you can't go wrong with Sprocket!Richie Stott ★★★★★ It has been a seamless transition to Sprocket and they have delivered on the goods. Very happy with the service and results. Our account manager, Kieran is great to deal with.Chris Sinclair ★★★★★ Great team to work with, we've experienced growth from day 1 and we're still going! Thank you team Sprocket DigitalBrent Alexander ★★★★★ We have been working with Ronnie and the team at Sprocket for a few months now and have been stoked with the results. Super helpful, very responsive to questions and great to work with. Would highly recommend.Lance Metz ★★★★★ Sprocket has been an incredible digital marketing partner, helping us grow our monthly turnover. They are extremely helpful and are quick to respond to any needs we may have. I would highly recommend for any company looking to take on a digital transformation journey.Mark Chapman ★★★★★ Great start with Sprocket. Particularly like the data driven methodology, transparency and friendliness.Hybrid Bikes Ltd ★★★★★ We have been working with Sprocket Digital for 3 month now and I am very happy with the team. They offer great service from analyzing our needs as a business to delivering a great action plan. I can highly recommend to any business which is looking for a fantastic marketing team. Kind regards FrankJosef Arnet ★★★★★ Sprocket Digital has been great to work with and has provided great inside and addition to the digital side of our business (Kitchen Things) their SEO team is fantastic and Harrison their Email marketing specialist is an absolute savant when it comes to knowing how set up email campaigns, templates as well as automatic email flows and the logic required to make them impactful and effective for a business. They always continue to impress with the work they do.Andrea Cummerfield ★★★★★ We've been using Sprocket Digital for around 5 months and are really happy with the results. The team is super easy to deal with, nothing's a problem, highly recommend using them!js_loader

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