Cost per lead (CPL)
What is cost per lead?
Cost per lead (CPL) is a key metric that measures the cost-effectiveness of your marketing and advertising campaigns in terms of the number of leads generated from a specific channel over a certain period of time.
The aim of measuring CPL is to provide the marketing team as well as the top management of a business with tangible data about the money that is spent on customer acquisition. This can help a business get more accurate numbers when it comes to calculating marketing return on investment (ROI).
The measurement of CPL is heavily dependent on how you define a ‘lead’ in your business. Therefore, let’s see what lead means before we calculate average cost per lead.
What is the definition of lead?
The definition of lead can vary from industry to industry or even among businesses in one industry. However, lead is generally defined as an individual or a company that shows interest in your product or service but isn’t ready to make a purchase yet.
Leads provide you voluntarily with some data (name, email address, etc.) in exchange for an offering (a free eBook), trial or a free demo session.
If leads are qualified by the marketing team to meet certain criteria, they are referred to as marketing qualified leads (MQLs). If the sales team qualify MQLs as potential customers, they are called sales qualified leads (SQLs) in your sales funnel. Sales teams work actively to move SQLs closer to a deal.
The more you manage to narrow down your leads, the more accurate your CPL measurement will be. On top of that, qualifying leads allows you to focus on the ones that are serious about having a win-win relationship with your business.
How to calculate cost per lead?
Cost per lead formula is fairly straightforward. There are two elements that you should consider:
The amount of money you spent on a certain campaign/initiative, etc.
The number of leads generated by the campaign/initiative, etc.
Once you have these two figures, you need to divide the amount you spent by the number of generated leads.
For example, you run a digital advertising campaign on Facebook and spend $1000. The campaign generates 20 leads for you. The average cost per lead for your Facebook ad campaign will be $1000 ÷ 20 = $50.
CPL allows you to measure another key metric: cost per sale. Let’s keep the above example in mind and assume your sales team need 10 leads to strike one deal. Here, your cost per sale will be 10 × $50 = $500.
Based on the cost of your offering as well as its margins, you can decide whether you have selected the right channel/message/content for your campaign or you need to reconsider them to drive better results.
Due to different prices of their products or services, B2B and B2C companies are immensely different in terms of their optimal CLPs. A financial service provider that serves big companies will be happy to pay a much higher CLP than a medium-sized Telecom company that targets end-users in a local market.
Once you set your average cost per lead calculator and measure your CPL, you can investigate the efficacy of your campaigns in channels like Google, Facebook or LinkedIn. You can compare your CPL for each of these channels and select the one(s) that result in lower CPL and higher ROI.
How to decrease cost per lead?
Successful businesses always look for ways to reduce their CPL and other customer acquisition costs. The following insights help you decrease your CPL and increase your margins:
Double down on your targeting efforts. The more you spend time to find where your target audience is, the easier it will be for you to reduce your CPL.
Monitor your campaigns regularly. Don’t wait for the time when you will realize your marketing expenditure is a bottleneck for the company’s profitability.
Develop a data-driven strategy. Always rely on data rather than conjecture. Use data to track your CPL on every channel.
Focus on generating organic leads. You may not be able to put paid ads aside altogether, but you can create a reasonable balance between organic and paid lead generation. Your focus on generating organic leads reduces CPL significantly.
CPL and promotional campaigns
Effective promotional campaigns enable you to decrease your CPL because you can get the most out of your marketing budget. To make your promotional campaigns as effective as possible, you need to know how to test and optimize them.
Testing and optimizing ensure that your promotional campaigns generate qualified leads for your business and reduce your CPL drastically.
To learn more about how to test and optimize your promotional campaigns, check out Talon.One’s white paper How to Test and Optimize Your Promotions.
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