How To Calculate Lead Value (With Examples)

By Indeed Editorial Team

Published September 29, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Being able to understand the value of every person who visits your company or sees its website can be an important tool for generating growth. If you're in a sales or marketing role, lead value is a way to understand the total value of a customer over the lifetime of interacting with your company. In this article, we discuss what lead value is, why it's important, how to calculate it and how to track it and provide some examples of lead value in use.

Lead value is the total potential value each potential customer has for a business. Lead value represents an entire lifetime of purchases that a customer may make. A lead is anyone who interacts with products that are on offer. You can use lead value to make economically sound business decisions, like how to bring more leads into a business, potentially increasing sales.

Related: Value Added Process: Definition and Value vs. Non-Value

Lead value is important because it can help you decide on policies, make predictions about sales and work towards acquiring more customers. Lead value isn't just important for singular purchases, it's also important for understanding the maximum value a customer can bring over a lifetime of purchases. It's also a potential way that you can calculate the return on investment (ROI) of customers. Businesses can use the ROI of customers to predict sales and plan marketing campaigns.

In order to understand the lead value, you can use several formulas:

1. Calculate lead value as the total of sales divided by the total number of leads

In this formula, the total of sales means the total numerical value a business has made in a period. The total number of leads is the number of people who noticed the business during that same period. Calculating lead value in this way can help you determine the value of a single lead. First, take the total dollar amount in sales and divide that number by the total number of leads. For example:

In the example above, 200 represents the lead value of each customer during a given time.

2. Calculate conversion rate as converted leads divided by the total number of leads

The conversion rate is the rate at which people go from leads to paying customers. This can be an important calculation to make for planning marketing campaigns and bringing in new demographics. In this formula, the converted leads are the number of leads who became paying customers in a period, where the total number of leads is the number of people who saw the products in the same period. For example, if you have 50 leads, but they only 10 made purchases, you can calculate the conversion rate as:

• 10/50 = 0.2

• 0.2 = 20%

Related: What Is Conversion Rate Optimization?

3. Calculate lead value as the average sale multiplied by the conversion rate

Calculating lead value this way considers the exact number of recent customer conversions. In this formula, the average sale is the amount one customer spends during a period. For example, if you make \$10,000 and you had 50 customers, the average sale would be \$200. Using the number from before, if you had 50 customers but 100 leads, then you would have a conversion rate of one out of two, or 50%. As a formula, you can represent this as:

• 50 customers/100 leads = 0.5

• 0.5 = 50%

4. Make a projection by finding the total leads needed as sales goal divided by lead value

You can use the lead value to make predictions about how much money you can make. Say you want to make \$20,000 and you have a lead value of \$200. If you use the formula, you would see that you need to have 100 leads during a specific period:

• \$20,000/\$200=100

Knowing that you need 100 leads, you can market more effectively to bring in more people.

You can use marketing to keep track of leads and their value. Some of the most common ways you can track leads include:

Tracking referrals and recommendations

Tracking referrals can help you identify the number of leads a business may get. Knowing this number can help you calculate lead value without having to remember exactly how many people come in. Tracking referrals can also help you develop ways to market to a larger number of people, possibly increasing sales.

Conducting surveys

You can conduct surveys to find out if people will return and other ways to market to the public. There are a few different surveys you can use:

• Phone surveys

• In-person surveys

• Mail-in surveys

Using a logbook

Having customers sign into a logbook can help you track lead value by giving you a definitive number of people who visited the store regardless of whether they bought a product or service. Leaving a logbook near the entrance to a business encourages customers to leave notes and sometimes the amount that they spent. Logbooks can also track how many people would recommend the business to others.

Related: 17 Types of Market Surveys

Below are three examples of how you can use lead value:

Example one

A popular clothing store makes \$13,000 in a single day. That same day, they had 13 leads. They decide to use the first method to calculate the lead value and determine that each lead was worth \$1,000. Using this knowledge, management decides they want to make \$20,000 per day, starting in two months' time. They plan marketing strategies and find that they will need to bring in 20 leads every day in order to accomplish this goal by taking the sales they want to make, \$20,000, and dividing that by their lead value of \$1,000. The following month, they run promotions and bring in an extra seven customers per day. By the end of the second month, they have met their daily sales goal.

Example two

A well-known, high-end art store decides they want to determine how valuable its leads are as part of a decision to start an online marketing campaign. They choose to use the second method of calculating lead value because they already know their conversion rate is three out of ten or 30%. Last month, they made \$150,000 and about 300 customers. They determine that their average sale is \$150,000 divided by 300, which is \$500. Using these values, they find that their lead value is \$500 X 0.3 = \$150. After considering the cost of the new marketing campaign, they decide to pursue other marketing campaigns instead.

Related: What Is a Marketing Campaign?