I’ve been toying with the idea of Marketing Equilibrium for quite some time now. I remember my economics professor talking about supply and demand while trying to instil in our minds the concept of the crossing trend-lines of supply and demand with grand hand gestures that felt to me like an awkward scene in “The Wave.”
I loved these classes. Recently, every time I have a discussion about marketing channels, budgets, new tactics and new vendors, all I see in front of me is Professor Ed Rice signaling an X sign with his hands.
For those of you who never studied economics, or are unfamiliar with the concept of Economic Equilibrium, the simple explanation is that in perfect market conditions, when quantity supplied and quantity demanded are equal, the price for those goods will stabilized at a point of equilibrium. In other words, prices will change (go up or down) until the market move to equilibrium where supply and demand are equal.
As a B2B marketer, the “goods” I’m trying to buy are leads, so the concept of a price equilibrium, a set price in which demand and supply of leads are equal, seems very appealing to me. Knowing the “magic” price I can expect leads to be “sold” at, will allow me to do two main things:
- Project the number of leads I can expect given a certain budget (or require a certain budget for a given lead goal)
- Find programs/channels in which prices are lower due to imperfect conditions (arbitrage) and exploit them until the market returns to equilibrium
The big question is how do I figure out the equilibrium price of leads? Is it a function of the industry? Does it vary based on the channel? Does quality has anything to do with it? Does volume play a part in the price I’m getting?
Unfortunately, there is no magic answer to this question (as far as I know) and the answer to the above questions is usually “Yes, it depends on all these factors and possibly more.” So like in other ambiguous situations in marketing, you will need to start from some point, collect data as you go along and try to figure it out over time.
But let’s assume that I do know what the price equilibrium is for my leads – let’s say it’s $25/lead – is that enough for me to project performance and find arbitrages?
It’s a good starting point for sure, but as I’ve been finding out over the last few years, leads are only “raw material” for what really matters for B2B organizations – opportunities. More so than with leads, knowing the price equilibrium of your opportunities is the sauce that makes your marketing-machine magical and it turns out that no matter how much your leads cost, when they get to be opportunities, they all cost the same.
Let’s assume you have only two channels – organic search and social media. They both drive leads at different volumes and have different cost structures. After much analysis, you figured that social media leads cost you $15/lead and organic search leads cost you $25/lead (after you calculated the cost of the SEO work that goes into optimizing your content and website). On the surface, it seems like you should double down on social media since it has a lower CPL. But if you continue to track these leads throughout their journey in the marketing-sales funnel, you realize that social media leads have a 5% conversion rate to opportunities and organic search leads have a 10% conversion rate. Using these numbers to compute the cost per opportunity you find out that social media has an average cost per opportunity of $300 while organic search is $250, the obvious choice here is to get more organic search leads since they actually cost less.
In this somewhat imaginary scenario the opportunities from these two channels are not at a price equilibrium, but as I continue to consider the concept of marketing equilibrium, I’m more convinced that one does exist, now it’s just a matter of finding it.