Do you remember when marketing budgets were unlimited and your job was to spend as much money as possible? The goal back then was to Get Big Fast and it didn't matter how you did it or whether you were creating long term revenue streams.

Those days are over. Now, marketing is a game won by inches and every dollar spent in creating customers has to be justified with positive results.

What does it cost to make a prospect?

Analyzing your marketing return on investment is a two- step process. The first step is to determine the cost of developing a prospect. In doing so, I'd recommend focusing on purely incremental costs - costs that you can change relatively quickly. Leave out fixed costs such as overhead, salary and commissions.

Some of the incremental costs that go into making a prospect include:

• database expense (cost of acquiring names and contact information)
• data cleaning (cost of validating contact information)
• outreach (cost of direct mail, outbound telemarketing, etc)

For a business-to-business product or service, the total cost to acquire and develop a single prospect may run $25, $50 or more, much higher than most companies would estimate without tallying the costs. Given this relatively high cost, you want to be sure that you're spending your money in the right places and managing those prospects carefully.

Read more about marketing on a budget...

What is a prospect worth?

The second step is to determine the value of a prospect. Simply put, the value of a prospect is the average amount spent by a new customer or client, divided by the number of prospects required for you to close one sale. In other words, if a new customer spends $35,000, and it takes 100 prospects to generate one customer, the value of a single prospect is $350.

Now that you know the value of your prospects, you'll take far better care of them. This simple analysis makes a great case for a closed loop lead management system. If a prospect costs $50 to develop and is worth $350, you sure don't want them to escape once they've entered your sales process.

You may not close all of your prospects today, but once you've spent the money to qualify them, it typically costs far less to maintain them as prospects over time. And as they become more familiar with your products or services over time, they may become more likely to purchase from you.

Or they may not!

Only by evaluating your sales and marketing metrics will you be able to determine this. With this information you can make educated decisions about where to invest your scarce marketing and sales dollars.

Read more about effective pipeline management

A new look for the newsletter

And just a quick note...we're undertaking a minor make-over for the Acelera Group newsletter. Our goal is to make the newsletter more useful for you as a resource that provides great marketing, partnering and sales information and advice. I'd appreciate your comments on the newsletter and the opportunity to discuss these issues with you.

Thanks for reading!