Why should you care about mastering cost per lead or CPL?
Is it important enough for you to spend five minutes reading this article?
The cost per lead metric is a great metric to measure the success of your marketing efforts so you can double down on what really works and generates profits for your business.
Cost per lead is also highly relevant in affiliate marketing programs.
In this article, we’ll get to know all there is to know about cost per lead.
We have divided this article into the following sections for your ease of navigation:
- What is cost per lead
- Why should you care about cost per lead
- Who should care for their cost per lead metric
- How to calculate your cost per lead
- Making strategic marketing decisions based on your cost per lead
- What is an average cost per lead?
- How to reduce your cost per lead
- Cost per lead in affiliate marketing
Let’s do this.
What is cost per lead
Cost per lead or CPL is a measure of how effective your marketing campaigns are when it comes to demand and lead generation.
To calculate a cost per lead, you’ll need to define a lead.
A lead is a prospect that has performed an action demonstrating an interest in potentially buying your products or services.
Such action can be signing up for a newsletter or filling up a contact form.
So the cost per lead will show you how much your marketing team spends in order to acquire an additional lead.
The cost per lead metric is important for the marketing operations so they have a good grasp of which marketing channels produce the most lead with the least amount of cost to your business.
Understanding your cost per lead metric will help you make marketing decisions and decide where to allocate more marketing spend.
Where should you spend more?
Where should you cut down?
Where should you experiment to see if you can increase the number of leads?
Which marketing channel is working well and which is not?
You can extract a lot of business intelligence by tracking your cost per lead.
Pay-per-lead is someone more advantageous for publishers as they can get a commission based on a qualified lead as opposed to a sale in a pay-per-sale marketing pricing model.
Why should you care about cost per lead
Imagine you’ve launched an important marketing campaign costing you $10,000 where you generated leads and sold some products.
How do you measure if this marketing campaign was truly successful?
Did you spend too much on this marketing campaign?
Is it a marketing campaign you should double down on because it was profitable?
This is when the cost per lead becomes a relevant metric to care about.
With a cost per lead, you are going to be able to determine if your marketing efforts and result were successful for your business or not.
If you spent $10,000 and you generated 100 leads where 50 of them bought your product at $1,000 per unit, you have an amazing marketing campaign result even though your cost per lead was $100.
By spending $100 per lead, you were able to make your business $40,000 in profits.
On the other hand, if you spent $10,000 and you generated 100 leads where 50 of them ended buying your product at $50 per unit, you have a serious problem to solve!
Your business just lost $7,500.
Calculating your cost per lead will help you calculate how much it costs you to acquire a lead and ultimately from those leads you can calculate how well they are converting to customers.
Who should care for their cost per lead metric
If you are running only one marketing campaign on one channel, you may not care too much for your cost per lead.
You’ll look at your sales and decide if your marketing spend was justified or not.
If you have a business where you are running different types of marketing campaigns, on different channels, inbound, outbound or other, you’ll want to know which channel is generating the most leads for you in a cost-effective manner.
Due to the complexity of your marketing operations, you’ll need to look at key marketing metrics to determine what appears to be working or not.
The cost per lead is one important metric you should track.
Every business will want to track their cost per lead metric if they are serious about increasing their profitability and scaling their marketing operations.
You want to allocate your marketing money where it matters and where you produce the best results.
Also, knowing your cost per lead can help you make decisions on how to reduce that cost.
The idea is to lower your cost per lead but generate the same amount of revenue as before.
If you can achieve that, you are on the right track.
How to calculate your cost per lead
You can calculate your cost per lead by taking your overall marketing spend or the spend for a campaign and dividing that with the number leads you’ve generated overall or for that campaign.
Cost Per Lead = Marketing Spend / New Leads
For example, imagine you’ve developed a search engine marketing campaign where you are looking to advertise on a pay-per-click basis.
If you spend a total of $5,000 to generate 200 new leads, then your total cost per lead will be $25 per lead.
Remember, a lead is not a site visitor.
You should not be counting the number of clicks you received through your PPC campaign but rather the number of website users that have performed and action demonstrating their interest in your products and services.
Your ultimate objective is to reduce your overall cost per lead.
Calculating the cost per lead is therefore pretty simple and straightforward.
There is no reason businesses should not be calculating it.
Making strategic marketing decisions based on your cost per lead
Once you are able to accurately calculate your cost per lead, your marketing operations can use this metric to make strategic decisions about further marketing efforts.
Are you going to spend more money on PPC campaigns, will you do more social media marketing on Facebook, will you want to spend more on email marketing and so on.
What is a good cost per lead?
Well, every company will have a different view of what can be a good cost per lead.
If you have a cost per lead of $25 when you are selling products worth $20, clearly something is not right.
On the other hand, if you are selling products worth $1,000, then a $25 cost per lead appears to be a massive bargain.
Your marketing operations will need to consider the cost per lead, just like the cost per visitor and cost per win to evaluate its marketing effectiveness.
Understanding your cost per lead will give you insights as to the effectiveness of your entire marketing operations.
Is your inbound marketing producing better results than outbound marketing?
Are you spending too much money on marketing campaigns and channels that cost a lot but do not produce enough leads?
With metrics like cost per lead, you’ll be in a much better position to drive your marketing efforts in the direction that makes sense for your business.
What is an average cost per lead?
Depending on your industry, the type of products you sell and how aggressively your business is competing in the market, you may tolerate different values for your cost per lead.
Setting the specifics considerations of businesses aside, what is an average cost per lead?
Across different industries and markets, what are the trends that we are seeing?
According to a HubSpot report, they conducted a survey of marketing professionals and found that organizations primarily using inbound marketing provided 61% lower cost per lead than organizations using outbound marketing strategies.
They have found that the average cost per lead for an outbound-dominated business was $346 per lead whereas the inbound-dominated businesses spent $135 per lead.
It appears that blogs, social media and organic search are the least expensive on a cost per lead basis whereas trade shows, direct mail and telemarketing were classified as the most expensive on a cost per lead basis.
52% of companies reported that blogs were cost-effective in lead generation.
These numbers are industry averages of course.
You should look at the cost per lead relevant to your industry and see where you are situated to get an overall idea of the cost per lead benchmark you should be aiming for.
How to reduce your cost per lead
There are many ways you can reduce your cost per lead and ultimately increase the profitability of your marketing campaigns.
We will focus particularly on one method that can dramatically reduce your cost per lead.
This method is actually a method to help you increase your lead conversion ratio on your website for the same volume of traffic you generate.
We are talking about your landing page.
Work on your landing page
One thing that can hurt your cost per lead metric is your landing page.
Imagine that you’ve done an amazing PPC campaign, targeted the right audience and attracted them to your website, but only a few convert to leads.
Why can that be?
This may have nothing to do with the effectiveness of your PPC campaign but all do to with how well your landing page is enticing visitors to convert into leads.
How can you improve your landing page so you can generate more leads?
There are some best practices that you can employ to ensure you have a solid landing page improving your chances of converting website visitors to leads.
Have one goal
You’ll need to have a landing page with only one goal.
If you are giving too many options to users, then users will typically have difficulty making a decision.
Keep your landing page on one topic.
Make conversion simple
Next, you should make the conversion effort minimal.
For example, have them give you a name and email address.
Don’t make the user fill out a detailed survey, you’ll lose most of them.
In increase your leads, you should have a clear and singular call-to-action on your landing page.
Your call to action should be clear and must be on the same page as your landing page.
If your users are required to navigate to other pages and click on links, then you will lose a bunch.
Write in simple terms
Your content should be easy to read, simple and to the point.
The simpler your landing page content, the easier it will be for your users to understand what you’re about and quickly decide if they’ll want to continue doing business with you or not.
By implementing these strategies and creating an awesome landing page, you’ll be able to increase the number of leads using the same effort and marketing spend as before.
The result is a lower cost per lead!
Cost per lead in affiliate marketing
Cost per lead is relevant for businesses to calculate the effectiveness of their own marketing efforts but the cost per lead metric is also used in affiliate marketing and display advertising marketing strategies as well.
In an affiliate marketing relationship, you’ll have an advertiser promoting the products and services of a business.
When the advertiser is able to generate a lead, as defined by the business, then the business will owe the advertiser a certain amount typically calculated on a pay-per-lead basis.
The website visitor can be qualified as a lead when they opt-in to a marketing campaign question, request for product information, sign up for a mailing list or request information to purchase a product.
The lead can be defined in a variety of ways based on what the business considers to be a concrete action that a user takes demonstrating an interest in the company’s products and services.
In this case, the cost per lead metric is a flat rate that you’ll pay your affiliate partner for every lead they help generate for you.
Unlike the cost per lead metric that you calculate internally where you add up all the cost of your own marketing efforts and divide it by the number of leads you generated, the cost per lead in an affiliate marketing program is a fixed price that you pay regardless of how much time and effort your advertiser will spend in generating leads for you.
In other words, although you are in full control of how you convert your leads, you pass on some of the lead generation risks to your advertiser.
Cost per lead is a very important metric for your marketing operations and business in general.
Using your cost per lead metric can help you make strategic decisions about your marketing efforts and even evaluating how much you should price your products and services.
The sales team will look at the cost of acquisition of a new customer which includes all the costs that go into acquiring a new customer, marketing folks will need to track their own effectiveness by tracking the cost per lead.
There are other metrics in marketing such as cost per visit or cost per win and they are equally important and should be read along with the cost per lead metric.
CPL is how much you had to spend to acquire a new lead.
The more leads you generate by spending the same amount of money or even less, the more you can decrease your cost per lead and achieve higher profitability.
We hope you enjoyed this article helping you better understand the cost per lead metric.
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