Using Moneyball (a.k.a Sabermetrics) to Optimize Leads and Generate Demand

If your instincts about lead sources are correct, or if your budget is unlimited, you don’t need analysis.  However, if you want to uncover objective answers that will tell you which of your lead sources are the most profitable, there are some great lessons to learn from the movie Moneyball, where 2002 Oakland A’s manager Billy Bean (played by Brad Pitt) effectively leverages sabermetrics to take the cash strapped team to the top of the American League.

After losing 3 star players to larger market teams with bigger budgets, Billy needs to find a way to put a competitive team together with far less to spend on players’ salaries than his rivals. Billy’s problem is similar to a common situation faced by marketers whose job it is to generate more leads without the availability of increased resources.

Despite one of the lowest payrolls in major league baseball, sabermetrics helped the A’s achieved an American League record 20-game winning streak and a 103-59 win-loss record.

The Sabermetric Manifesto by David Grabiner (1994) defines sabermetrics as:

[Sabermetrics] attempts to answer objective questions about baseball, such as “which player on the Red Sox contributed the most to the team’s offense?” or “How many home runs will Ken Griffey hit next year?”

How can you use sabermetrics in your marketing department to generate better leads at a lower cost? The key to leveraging sabermetrics in lead generation is being able to establish a value for each lead source and then comparing the value to the cost.

Let’s walk through an example: my company sells Software-as-a-Service (SaaS) backup solutions that are priced at $3 per seat (user) per month. Most SaaS companies aim to recover the cost of customer acquisition (CoCA) within a year. We aim for 9 months.  That gives us a budget of around $27/seat in customer acquisition costs (Cost Per Acquisition or CPA). We can therefore spend $2,700 to acquire a customer that will purchases 100 seats.  If we win 10% of the business that comes in from a particular lead source, we would be able to spend an average of $270 on a lead with 100 seats (3*9*100*0.10). Since the amount we can spend on a lead varies from lead to lead based on the number of seats it can buy, I created a custom field in Salesforce that calculates the amount we can spend based on the number of potential seats. This is the Moneyball field.

I called the new field “Allowable CPA” and the formula looks like this:

Total_Number_Users__c * 3 * 9 * 0.10

"Total_Number_Users__c" is a field we already have in Salesforce that captures the number of potential seats a lead has. 3 is the price per seat per month, 9 is the number of months we aim for CoCA recovery and 0.10 is the close won rate % for this particular lead source.

Once you have created the new custom formula field, you can generate a monthly report that sums the Allowable CPA field. Then you can create a chart or dashboard that shows exactly how much the generated leads are worth to the business.  

The key question sabermetrics asks is how does the value of the leads compare to the cost? In my example the lead source happens to be “paid search.” We have spent over $1,500 on a small pilot project for leads that have only generated $621 in Allowable CPA. The lead source is underperforming because the cost is higher than the value. While under normal circumstances we would have just uncovered a lead source that should be shut down, paid search is still a work in progress for my company so the jury is still out about whether it will be cost effective in the long run. The good news is that sabermetrics gives us a tangible goal to aim for.

27 November 2011 ·

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  1. markfeldman posted this

About Me

Marketing at the top of the funnel and some non sequiturs by Mark J. Feldman. I do Marketing & Demand Generation @ Backupify in Cambridge, MA. The views expressed are my own and do not reflect my current or previous employers. More about me at: http://about.me/markjfeldman

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