What’s the ROI going to be? Every Managed Service Provider wants to know, and every marketer struggles giving a good answer.
Watch Devin Rose from eBridge Marketing Solutions and The Host Broker for a discussion of various lead generation tactics and the ROI you might be able to expect.
Devin: Hello, everyone! Thanks so much for joining me today for a presentation entitled Lead Generation ROI for MSPs. My name is Devin Rose, and I’m from eBridge Marketing Solutions. This is actually the first time I’m giving this presentation. So, it actually was born out of some conversations that I’ve had with MSP’s over the years.
And frankly, one of the biggest questions as marketers we get most often and one of the most challenging questions to answer is related to ROI. ROI, obviously, is the measurement that most business people really care about the most. But the reality is that there are a ton of variables that go into ROI, especially when it comes to lead generation. And so providing an answer to the question like what type of ROI can I expect, is quite difficult. And as a marketer, you end up feeling like you’re maybe feeling a little bit evasive, like you’re not trying to and not able to answer the question directly head on. So what I did is, I was thinking about how to solve it, and how I could provide better answers to the questions about ROI. And we actually created an ROI calculator, specifically for MSPs, and specifically for lead generation campaigns.
So today’s presentation is going to go through various lead generation tactics. We’re going to come up with some assumptions about those tactics, and then we’re going to compute them in the ROI calculator that we’ve put together ato help answer the question about what type of ROI you can expect for various tactics.
So before we get into the meat and potatoes of presentation today, a little bit about eBridge Marketing Solutions, and myself, Devin Rose. I am eBridge’s VP of digital marketing. And we are a boutique marketing agency that really serves IT service providers. Such as MSPs obviously. Web hosts, and other IT service firms like data centers and infrastructure service providers and various vendors serving this ecosystem. We’re located in beautiful Vancouver, British Columbia. And we were established here in 2001 by my boss, whose name is Heartland Ross. Many of you may know him already. At eBridge, we do offer a full range of marketing services. We really specialize in digital marketing for IT service companies. But if you have any questions about marketing, in general, for IT service companies, even if it’s not related to this presentation or to lead generation, please feel free to ask those at the end, and I’ll do my best to answer them.
So I mentioned that we created an ROI calculator, and here on the left hand side of this screen is a screenshot of the calculator. So the way it works is there are six fields that you need to input information for. And you simply click the calculate ROI button. And the default parameters that are on you know, pre-populated with the calculator, if you go onto the page right now, these are all parameters that we came up with which are essentially an approximations for what would be a normal amount for an MSP. So, end users, our default amount here is 25.
Obviously it can vary wildly depending on the MSP, but that’s kind of in the right normal range. There monthly revenue per end user 150 is pretty normal for MSP’s. Again, it ranges for you know, larger MSP’s offering more services are going to be higher in that regard.
Profit margin. This is one that came out of some research we did. And 7.3% was a number cited online as an average profit margin. And I believe it ranges up to like 18-19% for the best of breed MSP’s. But we decided to go up to 7.3% to be conservative.
Monthly churn. Now this backs out to 0.6% per month. So per year, it’s about 7%. And that’s an average, that when we talked to a few people in the industry, was the consensus for an average MSP’s churn rate. Cost per lead, and close rate, the two ones in the bottom. This is really going to be the parameters that we are changing mostly in today’s presentation to discuss the various tactics. So you know, $1,000, you could use any number there, but $1,000 is the right neighborhood. Close rate, a typical close rate for B2B is about 25%-33%. So that’s for first sales, qualified leads. So you know, our default we went with there is 25%. But the point is, obviously just to go in and calculate based on the default parameters. If you want to go on to our webpage and use this calculator, I would suggest you input whatever information that you have to customize it to your individual situation.
And the calculator allows us to analyze a variety of different lead generation tactics which we’re going to do on the slides to come.
So, after you click the ROI button, this is what shows up. And on the right hand side of the slide, these are the ROI results. So from top to bottom is the average customer lifetime, we calculated this 13.9 years. That’s mostly based on the churn rate, the customer lifetime value factors, how the customer lifetime and also the MRR. Your cost per acquisition is factored in, or this calculated using cost per lead and close rate and the ROI that everyone cares about. In this case, it’s just over 1,000% for default parameters. And given that ROI, we can calculate the average yearly return and the break-even time.
So, let’s talk about some initial impressions of these default parameters. First and foremost, personally I was surprised by the length of customer lifetime and the associated value. You know, at a churn rate of about 7%, it means your average customer lifetime is about 14 years. That is more than I actually realized.
So, that was one takeaway for me. And then of course, if you have a customer for 14 years, you’re charging a monthly rate. You know, the customer lifetime value, it was higher than I expected as well. I had not fully realized that it was as high as $45,000 for a typical conversion.
I was also surprised a little bit by the high cost per lead. Our default parameters achieved a compelling ROI of 1,000%. That was higher than what I expected, given $1,000 cost per lead. And there’s a rule of thumb in advertising, not in lead generation. But in advertising, there’s a metric called RETURN ON AD SPEND, and in that realm, about 500%-600% is considered good. Obviously, more than that’s better but you’re looking for about 500%-600% return on ad spend and advertising. So, we can kind of use that as a rule of thumb here for lead generation as well. And, an ROI of 1000 obviously, exceeds that 500 to 600 range. So certainly considered a good ROI here. At least, that’s my first bluff, my impression.
And the other impression I had initially is just that I’d never really thought about lead generation campaigns in terms of yearly return or break-even previously. So, no, I don’t really have or at least I didn’t really have a good frame of reference for what would be acceptable there. But I hope that by going through the presentation today and comparing some different examples, it will firm up a bit of a rule of thumb and a frame of reference that we can use to analyze those metrics.
So, we should distinguish between a couple of different types of leads. And a lot of this will be familiar to you. So, I won’t spend a lot of time on this. But there are MQLs and SQLs. So, if Marketing Qualified Leads (MQLs) have shown at least some sort of interest in interacting with your brand, through some sort of interaction with your marketing materials, they’ve stuck their hand up and said, “Yeah, I’m interested in some more information”. Often, they have volunteered their contact information. And then, you’ll take the contact information and feed it into your lead nurturing system or your CRM.
And going from MQLs to SQLs which are sales-qualified leads to a conversion rate between, that does vary wildly between tactics. So, I just want to say that as a disclaimer, in today’s presentation, I’m making some assumptions about this conversion rate for different tactics and I did find some research to help me with that. But there isn’t a lot of research available online. So, I would just say that let’s take this for what it is. It’s an approximation or maybe an estimation for this exercise and please don’t take it as the Holy Grail because it’s going to be variable. And, frankly, just not a lot of research has been done into this sort of area.
But then, once they’ve converted to an SQL, what does that mean? That means not only have they stuck their hand up and said, “I’m interested in your company”, but they’ve also interacted with your sales team and matched your sales team’s qualification criteria. So quite often, B.A.N.T qualification criteria is used and there’s various other ones as well. However, you define what your qualified leads are. And as I mentioned, a typical closed rate for SQLs, for MSPs, or B2B in general is about 25%-33%. So we’ll be using that range for our assumptions.
Alright, now let’s get into the real tactics.
So first, we have content syndication.
Content syndication is when you produce a lead generation asset, such as a white paper, a case study, infographic, or recorded webinar and you use a third party to distribute it. So this was a little bit more in vogue, I would say a few years ago, when you would see it a little more often back then. And the idea is that the person who’s visiting the third party website who wants to download your asset has to disclose their contact information to do so.
So the leads that are being generated here are MQLs. And generally speaking, you’re going to pay about $60-$100 per lead from this method, depending on how specific the criteria that you’re using in terms of your qualification. So, $60 would be probably standard for midsize businesses. But if you’re going after an enterprise or something, it’s a little bit more niche and it’s probably going to be closer to $100. In terms of our close rate, MQL to SQL, this is based on loose research. So, don’t quote me on the exact numbers here, but it’s going to be on the lower end of the range. So, about two and a half percent for this sort of tactic. The quality of traffic leads is not going to be very good compared to some other sources we’ll be talking about.
And then to convert the SQL into a paying customer because the quality isn’t going to be as high, we’ll assume it’s on the lower end of our normal range. And if we multiply the MQL to SQL conversion rate and SQL to customer conversion rates together, we get that to the very bottom, that is the total is 0.6%.
So yeah, just on the left hand side, the calculator here, for the cost per lead which is highlighted, it’s $80 which is the midpoint and then we have our close rate. And the rest of the parameters at the top are unchanged based on the defaults.
So, let’s see what happens to our ROI, when our cost per lead is $80. And our close rate is 0.6%. We get an ROI of 250%. So, at first glance, that sounds pretty good – 250%, I think that’s a substantial ROI. But then we go back to our rule of thumb about the return on ad spend, about 500%-600%. And then, it’s about half the range we’d like to be in, by that rule of thumb. And you can see why, because if you look at the break-even time of 4.6 years, I mentioned, I wasn’t really sure what a rule of thumb should be for break-even time. But I feel pretty sure that 4.6 years is too long. So, I think pretty conclusively we can say that content syndication is not worth it for most MSPs.
Okay, now, outbound lead generation. And so I think you might be a little bit cut off by my image up there but it says overseas provider and we’ll do a domestic provider also. So, outbound lead generation is the process of using email, LinkedIn, and data mining to outreach to individuals and organizations that match your target criteria.
So, I’d say it’s mostly done by email. And in these sorts of programs, when you’re kind of casting a wide net, you’re sending a lot of emails. So, you’re generating a variety of different qualities of leads as well. You’re generating both MQLs and SQLs. And generally speaking, you’re probably going to pay in the neighborhood of about $300-$450 per lead with this sort of a tactic. And for our close rate, I’m assuming that because this is an overseas provider, we might get a little bit more MQLs than getting SQLs. So I’ve assumed we’re going to get about 2/3rd MQLs and 1/3rd SQLs.
And, I’ve made some assumptions in regard to the close rates there, which back out to 9.4 . So, on the left hand side of the calculator, again, we’ve adjusted the cost per lead to $375 and the close rate to our 9.4%. Let’s see what the ROI is, 1,000%! That’s nice to hit the four digits again. That sounds obviously very, very strong. And, the other thing that sticks out to me here is, the break-even time of being 1.3 years. It’s interesting, it’s still over a year, given the ROI is, 1,000% is very good. But I think 1.3 years would probably be palatable for most MSPs, especially considering that you still have that 13.9 year customer lifetime. So, in a sense, you would have 12.6 years of profit after the first period of the break-even period, 12.6 years where you’re essentially free roll one.
So this seems really appealing for a lot of MSPs and definitely worth it for most MSPs. The nice thing about using an overseas provider for something like this, at eBridge, we’re partnering with an overseas provider, is the mechanics of administering these sort of outbound lead generation campaigns with email. The mechanics are time-consuming, and it’s difficult to pull it off. So, it’s helpful to have an overseas provider, maybe to save a little bit on the labor costs because there’s only so much you can do to really minimize the amount of time that it takes to do these campaigns. And, obviously, using an overseas provider reduces the cost per lead.
Worth it for most MSPs
Inbound marketing. So to contrast with the outbound that we just discussed, inbound marketing is about getting people to reach out to you when they want your services. You’re not reaching out to them. They’re coming into your website, they’re coming into your marketing mix by their own volition and then you are marketing to them subsequently.
So, inbound marketing was popularized by HubSpot, and HubSpot likes to brand everything on their own terms. But it’s really just a fancy term to say, permission marketing, using content, SEO to get people to your site to see the content that you’ve written. And then, adding value through email marketing to encourage leads to convert when they’re ready to. So it’s not as pushy, it’s more about them coming to you when they want to,
Inbound marketing generally generates MQLs, because these people haven’t talked to your sales team yet. And, the cost for leads for inbound marketing, it’s about 40% of the cost of outbound according to what I found in some research. So, definitely this is a rule of thumb. Don’t take this as a hard set rule. But we’re going to use that as an assumption for our calculations today.
And the MQL. The customer closed rate was 14%. According to HubSpot, again, take that, for what it’s worth, HubSpot may have a bit of an incentive in inflating that. But for the purposes of today’s presentation, we’ll use that. And so on the left hand side on the calculator, I have put in our midpoint for the cost per lead, and the close rate. And let’s see what we calculate
An ROI of about 1,000%. It’s funny how that’s come up a few times in the presentation, but this one is just a shade under 1,000%. And, we have some familiar numbers in terms of the average yearly return being 17%, or 18%, rather, and break-even time about 1.4 years. So similar to what we saw before, inbound marketing, definitely worth it for most MSPs, it does take a little while to get going. That’s one thing to note. Whenever you’re doing permission-based marketing, it’s not going to have as quick returns as say, like advertising or paid tactics. But generally speaking, you’re going to have…you’re going to set up the stage for success going forward. So you know, you don’t get the results right away, you kind of build the machine for ongoing success.
Worth it for most MSPs
Okay, now buying or renting a lead list.
This is kind of an inexpensive way to get contact information. And you typically get the phone number and the email number is typically provided by a large third party. This was definitely more invoke, like, you know, if content syndication was invoked three years ago, this sort of tactic was invoked like 10 years ago. We still get asked about it, sorry, we get asked about it, from people who have maybe done marketing like 10 years ago, but took a break and came back to it or something. But this is generally not really done too much anymore because it’s just for B2B marketing. You want to take a quality over quantity approach, and this is the opposite direction.
So, with this sort of tactic, you’re generating essentially junk leads for a couple bucks a pop. So, for the cost per lead, we have $2 there. And then for the close rate, based on some assumptions, I think about 1/100 of a percent would be a reasonable close rate for these sorts of leads. So just terrible. And let’s see how it works out.
185% ROI. So, I’m actually surprised it was positive.
But look at that cost per acquisition. $16,000 cost per acquisition. That’s insane! So, our break-even time is six years. I don’t think anyone is going to want to wait six years to see a return on their marketing. So I feel fairly conclusive that we can say, buying or renting a lead list is a waste of time, do not bother doing it. You’re just going to spend money for no purpose.
Waste of time
And then there’s Google ads, good old Google ads, see the big player in the marketplace. And, when you’re doing lead generation with Google ads, they don’t have a lead generation native offering.
But what you can do is set up the ads to drive traffic to your website, and have a landing page, which is featuring gated content. So this is similar to the content syndication where it’s a white paper case study infographic, a webinar, though, and the person has to disclose their information before they can download it. But the big difference is, it’s on your website, as opposed to a third party’s website.
So for Google ads, to get people to that landing page, you pay probably about $10 to $20 per click in this industry. And a reasonable conversion rate to get somebody to disclose their contact information and become an MQL, is about two and a half percent. Maybe a little bit higher than that. But for our purposes, two and a half percent will work. And so that backs out to your cost per MQL, being $400 to $800. And I’m going to take the midpoint for our calculation of $600 on the left hand side. And then, the close rate, we can come up with some assumptions based on the fact that it’s higher quality traffic. So our SQL close rate is 33%, which is at the higher end. The MQL to SQL being 14 was based on some research from HubSpot. So our total is 4.66%, which is what I have in the calculator there. And let’s see what that calculates – 254%. So similar to the binder, or renting the list, not very good at all.So based on that, I think we can say that, it’s
Not worth it for most MSPs… but wait!
Google’s cost per click is heavily influenced by the amount of competition in your area. So if you’re in a big city, that $10 to $20 amount per click would probably apply to you. But if you’re in a tertiary or secondary market, it would be significantly less. And as a ballpark, I was suggested at $2.50 to $5, which would be approximately, which is one quarter, what would be a large market. And, that does make a big difference on our calculations here because the MQL goes down to about $100 to $200. So, for our calculation, I’ve taken the midpoint of 150 and kept everything else the same. And let’s see what happens.
Now, our ROI is 1300%. Have a payback time of just a year. So quite a drastic difference. And it just goes to show you that is why this question is hard to answer.
So if someone were to ask me, what’s the ROI for lead generation for Google ads? My first question is going to be, well, what sort of market are you in or how much competition is there in the city? And that might lead to an hour long conversation before we get to circle back on the ROI. So it definitely depends on your individual circumstance. And it’s hard to provide blanket information about Google ads. But it’s definitely worth exploring and seeing what sort of cost per click is in your region.
So Google Ads is a worthwhile strategy for MSPs and tertiary or secondary markets, but wait.
Worth it for MSPs in tertiary or secondary markets…but wait!
For MSPs in cities targeting large organizations, Google ads can still make sense as long as there’s sufficient MMR. However, it’s always a good idea to have a Google Ads campaign bidding on your own branded keywords. This is a little bit counter-intuitive if someone’s searching for your branded keyword. So in our instance, let’s say someone searches for eBridge Marketing Solutions, our website’s going to tend to pop up already because it’s such a strong key phrase for us. So you might think “Well, if I’m popping up at the top of Google search results already, organically. Why would I want to pay for an ad at the top of Google also for those branded keywords?” And the answer is that there’s lots of evidence to suggest that it improves conversion rates. And there’s a psychological reason for this, I think. It makes you come across more professionally.
Not just a mom and pop shop who doesn’t have it together to organize themselves to get their Google Ads going. It shows your degree of sophistication.
And also, it protects you against your competitors bidding on your keywords. So, if someone searches for you, the last thing you want is to show up below your competitors. So it makes sense for most MSPs to bid on their own branded keywords.
And finally, the last tactic we have today, before we get into questions is Paid Social Media.
So for B2B, the networks that are most important are LinkedIn and Facebook. And they both offer native lead generation ads. So the way that these work is that they show up in the users feed. And it’s similar to the content syndication where there’s some sort of a lead generational asset being offered. And the person has to disclose their information to download it.
But the difference is it shows up right in their feed. It works very similarly for both LinkedIn and Facebook. And the nice thing is, like, sometimes if you’re doing content syndication, or even driving people to a landing page on your own site, they’re not gonna want to disclose their actual information.
So, you tend to get…some degree of people will say their name is Mickey Mouse, or Barack Obama, or they’ll say their zip code is 90210, that sort of thing.
So it’s nice with LinkedIn, and Facebook, and especially LinkedIn because they draw the contact information from the user’s profile. So people don’t tend to lie on their LinkedIn. They tend to provide straightforward and truthful information about things like their job titles, and also the name of the company and the size of the company. All that tends to be more accurate on LinkedIn than you would get in some other tactics, and to a lesser degree, Facebook as well.
So for both LinkedIn and Facebook, you’re going to be generating MQLs. And both of them actually have tools where you can go on and estimate this as well. But the average cost per lead is going to be about $30 to $50. And it will vary just like the cost per click of the Google ads. It will vary depending on your region and how competitive it is. But that’s a reasonable approximation. And the company sizes here are going to skew a little bit smaller. So, before we were assuming that the number of end users might be 25. Here, I’ve adjusted down to 10. So I didn’t highlight that cell. But at the very top, you can see that It’s been adjusted down to 10. And I think that’s just because big companies aren’t making decisions on social media as much as small companies are, at least that’s my experience, I’m sure it does vary a little bit.
And so we have a cost per lead of $40, which is the midpoint of the $30, to $50. And our close rate, based on the assumptions that I put together, they’re about 5% and let’s see what the ROI is 2,180%. So significantly better than anything else we’ve had with a break-even time of, essentially two-thirds of the year, half a year and average yearly return of 25%.
So obviously, this is an outstanding return. I think every MSP would love to have this sort of return. And so very confidently, I can say that it’s worth it for most MSPs to try paid social media, and to see if they can get a similar ROI. But just to recognize that the volume is likely going to be low. And if you go on to Facebook or LinkedIn, and you do create, start to create a campaign and LinkedIn and Facebook will tell you approximately how many leads you can generate per month, and you can probably expect a few.
So, this is a really nice tactic, it’s worth doing. But it’s not very scalable, I suppose unless you’re like an MSP that might be more nationally oriented. But for most MSPs that are, you know, looking to work in their own city or county, the volume is going to be low but it’s still worthwhile.
Worth it for most MSPs. But volume is likely low.
So, that brings us to the conclusion and really what I want to leave you with, if you are wondering about what sort of ROI that you can expect from lead generation campaigns, is to understand that it does vary wildly. There are a ton of variables involved. And going on to the website and checking out the calculator yourself and inputting your own variables and playing around with it, would be a good way to see what might be an appropriate tactic for your company.
But generally speaking, the best bets for most MSPs are paid social media, inbound marketing and outbound lead generation from an overseas provider.
And then for some MSP it’s going to make sense to have Google ads campaign and outbound lead generation from a domestic provider, depending on the size of the targets you are going after and how much competition is in your local market. So proceed with caution with those. It’s not going to fit everybody and you can pretty much 100% avoid buying or renting lists or doing any sort of content indications because those are just not going to work anymore. And I certainly had personal experiences which align with the calculator in that regard. So save your money, don’t do those things.
That is really it for the presentation today. So, thank you very much for joining and I really appreciate everybody’s attention. And if you are interested in discussing lead generation for your specific MSP, eBridge Marketing offers all these tactics that we talked about today. We can help you to determine what the reasonable parameters would be for the calculator, what sort of ROI you could expect going forward.
So if you are interested in having a discussion like that for your company, please don’t hesitate to reach out. My contact information is right there or you can also go through our website.
eBridge Marketing Solutions
1-604-731-5530 or 1-888-436-5262
And the link to the MSP ROI calculator is there as well. It is ebridgemarketingsolutions.com/msp-roi-calculator