True Value of Customers Compared to Leads: Defining the Difference

It’s drilled into the business world as well as marketing and lead generation that both leads and customers come with a very vital value. However, there exists a very critical value difference between a lead and a customer. In this regard, understanding the major difference relating to the value of a lead and a customer is important for optimizing your marketing approach as well as resource utilization. This is because the customer usually holds a more significant value than the lead. How and why? Let’s find out.

What is a Lead vs. What is a Customer?

Breaking it down first, what we are actually referring to with leads and customers, before comparing their values:

• Lead: A probable customer who has indicated an interest in your product or service but hasn’t purchased the same yet.
• Customer: Any person who has made at least one purchase from your company.

Value Proposition: Customers vs. Leads

1. Direct Revenue

The biggest point of distinction is that customers generate revenue immediately whereas leads generate revenue only prospectively. That makes customers intrinsically more valuable on its own.

2. Customer Lifetime Value (CLV)

Customers carry a Customer Lifetime Value (CLV), or the sum of revenue a business can expect from a single customer account over the course of the relationship lifecycle. Leads on the other hand have only prospective value.

3. Acquisition Costs

More generally, it is cheaper to retain a customer than to acquire a new one. Once the lead converts into a customer, subsequent sales usually cost less.

4. Word-of-Mouth Marketing

As if by magic, happy customers can become brand ambassadors, marketing the beloved brand to other customers. This meets one of the base needs of growth organic growth is far more precious and inexpensive than continually searching for new leads.

Measuring the Gap

Although this difference between a customer and a lead’s value is very well crystallized over the different industries and models, to really drive the point home, let’s take some generic numbers:

• Conversion Rate: Take the assumption that you have a 10% conversion rate from leads to customers. Statistically speaking, that makes a customer at least 10 times more valuable than the lead.
• Customer Lifetime Value (CLV) vs. Lead Value:
  • Assuming your average CLV is around $1,000
  • If conversion rate from a lead to a customer is 10%, then the value of a lead averages to $100 because 10% of $1,000
  • In that scenario, a customer is ten times more valuable than a lead
• Repeat Purchase Rate: If 50% of customers return for a second purchase then the value of a customer increases yet again above that of a lead.
• Referral Value: Wherein, for instance, if each customer refers one new customer, then almost one would say that the value of a customer is almost twice that of a lead.

How to Maximize Customer Value

Now that their value is higher than that of leads, people in business should:

1. Lead Qualification: Rather, talk about how one may reach more leads who are nearer becoming good value customers.
2. Customer Experience Improvement: Happy customers will come back and may bring more.
3. Deploy Loyalty Programs: Leverage repeat business and build in CLV.
4. Upsell and cross-sell: Increase the value of every customer interaction.
5. Capture and Act on Customer-Generated Feedback: Leverage customer intelligence to improve your products and services, and attract even more high-value customers.

Conclusion

No question leads are great for business growth, but customers are much, much more valuable. They bring in immediate revenues and generally possess a hard lifetime value easily measurable; they cost less to retain than to acquire, and once sated they become powerful brand ambassadors.Understanding this, knowing the difference in the values will enable the companies to make a good choice on the distribution of the resources to allocate on the leads generation and customer retention strategy. Don’t forget that acquiring customers is not a goal but long-term mutually beneficial relationships driving sustainable business growth.

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