Cost per lead (CPL) is a key web marketing KPI that measures the effectiveness of a lead generation campaign: here is what it is, how it is calculated and how you can optimize it.
Advertising and promotional campaigns play an essential role in finding new customers for your business: a lead generation of success is, at the same time, one of the key signs of effective marketing and the fundamental fuel for your productive sales efforts.
But how can you know whether this is working for you or not?
Try to think: If you are attracting new customers, but you are doing so by paying more than they are worth in advertising spend...
Well, this means that in the long run your investments will no longer be so sustainable for your business.
However, I do have some good news: there is a simple but functional way to measure the cost-effectiveness (and thus the performance) of your marketing campaigns.
It is a metrics that can tell you whether your advertising efforts are paying off, and it's called Cost per Lead (CPL).
It is one of the many Marketing KPIs that help you make more strategic decisions, monitor your budget, and optimize your actions.
If you are not familiar with it or would like to learn more about it, keep reading the article: you will understand what cost per lead is, how it is calculated, why it is so important, and finally you will find some small tips to improve it.
What is Cost per Lead?
As I told you, cost per lead is a metric, a so-called key performance indicator (KPI) that allows you to specifically monitor your ad spend investments and understand, in essence, whether they are productive or not.
Specifically, cost per lead is the amount of money you spend on average to acquire a new lead, that is, a new contact, through your marketing channels, including the paid advertising, the content marketing, social media campaigns and any other form of digital promotion.
A lead is nothing more than a person interested in your products or services who expresses interest by voluntarily providing their contact information (e.g., email, phone number, social account) in exchange for an offer or valuable content.
These leads are then nothing more than people who saw one of your ads, clicked on it, visited one of your landing page or interacted with one of your posts, and who finally shared their data with you.
In the sales funnel, these are those who have approached you but have not yet made a purchase (i.e., have not converted into paying customers).
Cost per lead is a channeling metric that is part of the overall customer acquisition cost (CAC), along with, for example, cost per MQL (marketing qualified lead).
It is just one of the many parameters of web analytics to examine and it is important that you do not confuse it with others, such as the CPA (Cost per Acquisition), the CPM (Cost per Thousand) or the CPC (Cost per Click).
In general, cost per lead is used to evaluate the effectiveness of individual campaigns, via ads, email marketing or social media, but it can also help you understand whether you are getting the most out of your marketing spend as a whole.
Its purpose is to provide your team with a tangible figure, as well as essential data to use in calculating the ROI, so that you can figure out how much money to spend to acquire new contacts.
As mentioned earlier, if you're spending more money to acquire a new lead than to make money (by making that lead a paying customer), there must be something wrong, right?
Cost per Lead: how is it calculated? (Formula)
Cost per lead (CPL) thus refers to the amount spent to acquire a new lead, i.e., a potential customer who enters your sales pipeline and has the potential to convert into a paying user.
But how to know that amount?
Don't worry, the formula is quite simple.
The first thing you need to do is to capture two pieces of information: the number of leads generated (qualified leads for both marketing and sales) in a given period and the amount of money you spent on that particular campaign.
At this point, all you have to do is divide the total marketing spend by the number of leads generated.
Here is the formula:
Cost per Lead = Total marketing spend/Number of leads generated
We also give an example.
Let's imagine that you spent €1,000 on a Google Ads campaign and acquired 100 new leads through it: the CPL for such a campaign will be €10.
CPL = 1000€ / 100 = 10€
This means that for each lead acquired, you spent the average amount of 10€.
What is a "good" cost per lead?
Well, now that you know what the CPL is and how to calculate it, you may be wondering: how do I know if it is good or not?
The truth is that there is no one answer that is always true.
There is no absolute CPL value that any company can look to as a benchmark for the optimal efficiency of a marketing campaign.
Whether a CPL is more or less "right" in fact depends on multiple factors, including the type of business, the industry, the product or service offered, but also the market, target audience and competition-as well as your revenue and the marketing budget available to you.
Your goals also make a difference.
If you aim for quality, a higher CPL could mean a higher quality lead and a lower overall cost of customer acquisition.
If you aim for quantity, you may want to lower the CPL, even if the leads are not as qualified.
In addition, CPL tends to fluctuate based on the channels you use for your marketing activities: leads generated by attending a trade show, for example, will not cost you as much as those obtained through email marketing.
Figuring out what a "good cost per lead" is essentially amounts to "probing." If you find that the cost per lead for a particular channel is disproportionately high compared to the conversion of those leads, you may want to reevaluate whether that strategy is actually worth it.
Finally, you can also compare your CPL with average lead prices in various industries and channels-this way, you will have a better idea of how much you should spend on each.
Why is knowing the cost per lead important?
I guess you've already guessed it: knowing how much you spend on average to acquire a lead through a marketing campaign is critical to realizing the effectiveness of your investments.
Yeah, because even if you're already doing a great job generating leads, taking the time to calculate your CPL will provide useful information about how your business works.
No use acquiring 1000 leads in a week if you had to spend your entire annual budget to do it!
Do you agree?
Cost per lead therefore allows you to find out if you are using your advertising budget wisely, but not only that: you will also know which channels bring you the most leads and thus reduce investment on the less profitable ones.
Cost per lead is necessary when it comes to understanding the effectiveness of your marketing strategies-it is a great indicator of what works and what doesn't, helping you make choices about how to focus your efforts in the future.
This metric can help you monitor individual campaigns or an entire marketing plan, providing important data for calculating return on investment (ROI).
Read also: How to Calculate ROAS (Return On Advertising Spend), Churn Rate: what it is and how to calculate it, Customer Retention: definition and meaning, What are impressions and why they are important)
Reducing cost per lead: 4 tips
If your CPL is a little higher than it should be, don't worry-you can reduce it by implementing a few small best practices.
Here are some suggestions:
#1 Accurately identify your target audience.
To sell your products effectively, you should know. to whom you sell them.
If you find that your marketing campaign is not attracting all the leads you want, one of the first things you should do is narrow down your target audience and focus on the people you want to reach.
In itself, it is obvious that audience targeting is extremely beneficial to any campaign: it helps you deliver the right message to the right people at the right time.
Analyze your reports to find out what characteristics users have that interact most with your advertising, so you can identify your potential customers and target them in the best way.
#2 Focus on generating relevant content
If you want to increase conversions, you need to provide content in line with the interests of your audience: relevance is probably the most important concept when we talk about digital marketing.
A content can be considered relevant When two conditions are met:
- You have selected the correct target audience: this means that you are targeting people who might actually represent a demand for your product/service.
- Your content delivers the right message to your target audience: it must be clear, direct, and include the answer to the question, "Why do I need to buy your product? How will it benefit me?"
If your content reaches people who could potentially be interested in it with the right message, more users will click on it. This also means that your click-through will be cheaper and, as a result, you will also reduce your CPL.
#3 Do retargeting campaigns
When a lead has not yet converted into a paying customer, retargeting can help you reach them again and make sure they have the best chance of converting.
Start by analyzing the behavior of leads who have already converted. Keep an eye out for certain trends, such as visiting a particular page or taking a specific action before making a purchase.
Once you have identified certain behaviors, you can create a retargeting campaign based on them. For example, if a high percentage of prospects turn into customers after viewing the pricing page for more than a minute, you may want to retarget future prospects who take the same action.
Retargeted ads help your business generate more conversions-and more conversions mean you can lower your CPL.
#4 Optimize your advertising campaigns.
A final best practice is to make sure that the mechanism of your ads and promotional campaigns works throughout.
This means, among other things:
- the web page linked to the ad loads quickly, to prevent waiting from leading to abandonment;
- The keywords you invest in are high-yielding, eliminating those that do not convert and focusing perhaps on so-called longtail keywords, more specific and less researched than generic ones;
- The form where you ask people to leave their contact information is quick and easy to fill out.
Conclusion
As you can understand, cost per lead is necessary information if you want your marketing campaigns to be truly effective.
If you are struggling with lead generation and need some advice, contact me: I will be very happy to help you!
But tell me, do you constantly monitor cost per lead?
Let me know in the comments!