The extremely important business metric you’re not watching

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If you’ve been an entrepreneur for long, there are certain metrics (measurements) you practically live by.

You know them like the back of your hand.

For us designers, it could be something like average dollars per project, average dollars per month, or average dollars per client. These kinds of metrics help us measure success and sustainability.

For example, if I need $1,000 each month to survive, and I know that I have an average dollar per client amount of $500, then I know I need to find at least 2 active clients per month. (PS: if you work in some other currency, swap out “dollars” in this post for your currency of choice.)

The business metric your not watching

But today, I want to talk about one super-important business metric that you may not be watching–one that could completely turn your business around.

If you agree or disagree on the importance of this metric, please let me know by leaving a comment.

So what’s the all-important metric you may not be watching?

Dollars per lead.

In case you’re not sure what a “lead” is, it’s when a potential client or customer contacts you. Different businesses have different check points that determine exactly what a lead really is.

For most designers, it means a client gets in touch with them either through their contact form, or by calling a telephone or skype number.

Portfolio = lead generator?

A lot of designers work hard on their online portfolio in hopes that it will generate leads and ultimately sales for their business.

But most designers quickly find out that just because a potential client contacts you doesn’t mean they’re automatically going to hire and pay you.

Enter one of the most important metrics you may not be watching: dollars per lead.

It may take, for example, an average of 5 potential clients to contact you before you finally close the deal. Then, let’s say that client pays you $500 (just to stick with the analogy earlier). Your dollars per lead is actually only $100.

If you then know that you need to make $1,000 each month, you know your web site has to generateat least 10 leads each month for you to make the money you need.

Simple, right.

But it’s an often-overlooked metric by a lot of new entrepreneurs.

So what does that mean?

Now that you realize you’ve been overlooking this extremely important metric, what’s next?

First, figure out what your target dollars per lead amount is.

Second, assess your current target income rate in relation to dollars per lead (don’t get hung up on math terms here like “ratio.” Just figure out how many leads you need to get in order to make the amount of money you need each month. See a few paragraphs above for an example).

Third, work on your web site, business card, cold-call, etc. until you hit or beat your lead generation goal.

Get it?

It’s easy.

So if you’re building a web site and you know that one out of every 100 visitors contacts you about your services (a lead), and you need 10 leads per month, you have to generate at least 1,000 unique visits to your web site every month in order to hit your target.

It’s a simple numbers game.

And that’s all business really is: a numbers game. If you can make the numbers work, you’re in business.

If the numbers don’t work, you go out of business.

Simple as that.

Watching that extremely important metric

So, have you been watching yourdollars per lead metric? Do you know where your business stands?

If not, start today. Do the math, play the numbers game, and figure it out.

It’s worth your time.

If you’ve already to got it figured out, or want to add something to this post, please leave a comment! I’d love to hear from you.

 

About Preston D Lee

Preston is a web designer, entrepreneur, and the founder of this blog. @prestondlee

Comments

  1. Preston,

    Such an excellent post – not only can measuring dollars per lead teach you how many leads you need to get per month, it also teaches you which marketing outlets are working best for you and which aren’t – and therefore where you should focus your precious marketing time, or what needs improvement!

    For example, if your LinkedIn profile is getting you more dollars per lead than your Twitter feed, you’ll know to put more effort into your LinkedIn profile, or maybe make an effort to improve your tweets to improve your ratio there. Maybe Google+ really isn’t providing leads at all, so you decide you’re going to spend your time there on LinkedIn instead.

    Thanks!

    April

  2. Nice one for the pointer. I’m just trying to work out pricing after quitting my job 2 months ago!

  3. Nice post. I’ve made a spreadsheet to start tracking lead values (I guess I should have been doing this already).

    Do existing clients who come back for more project work count as leads?

  4. As a start up photographer, I’m facing this issue right now, and the reverse. While I want bookings, I need to make sure I’m generating enough, but not so many I can’t provide the level of service expected. The fact that social media creates so many additional touch points makes it even more complicated. If I do direct mail, how many per month? Do I buy an email list? What are the response rates for email versus direct mail? How do I manage Twitter, Pinterest, Facebook, and email to feed off each other and generate referrals, impressions and inquiries, and how can I ensure the leads I’m financing generate a high enough ROI I can afford to do it again next month? It’s a job in itself.

  5. Great post Preston. So many people forget you have to work backwards to determine your sales activity (phone calls, emails, direct mail shots etc).
    I like to look at it as: Leads X Conversion Rate X Average Sale = Income
    Most people focus on getting more leads by marketing harder but miss out improving the conversion rate by having a good sales process. Lets’ say you have 20 qualified leads and convert at 20% with an average sale of $500 then your income is $2,000. If you improve your conversion rate to 25% then your income is now 20X25%X$500 =$2,500. So a 5% increase in your conversion rate increases you income by 25%.

  6. Thanks for this article, Preston. I think it’s also important to track what percentage of leads you actually close and determine ways to improve that number. For example, if I currently turn 1 out of 5 leads into paying clients, I need to figure out how to get 2 out of 5.

    One way to improve this is to figure out how to get not just a higher number of leads, but better quality leads. If I’m just trying to get as many leads as possible, they might end up being low-quality leads (clients who aren’t likely to hire me, or who are likely to be low-paying or troublesome clients).

    However, if I examine my client list and observe what characteristics make for the best clients (and most likely to hire me), I can search for more clients with those characteristics.

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