Do you ever feel overwhelmed by the number of marketing metrics out there? CPM, CPC, CPA; these acronyms sound fancy, but none of them is as useful as "cost per lead." This one metric can help you figure out if your marketing efforts are delivering a positive return on investment.
Let's define "cost per lead." or "CPL."
Cost-per lead measures how much you’re paying for each lead. The calculation is simple:
Cost per lead = marketing spend / number of leads
Some companies may have different CPLs for different customer segments. For example, a B2B SaaS company may have enterprise-level and small business subscriptions. They may spend more to acquire enterprise leads than obtain small business leads; thus, their CPL for enterprise leads would be higher.
CPL is different from cost per click or cost per acquisition. All three metrics show how efficiently you’re spending your marketing budget. If the marketing goal is to attract customers, it’s worth measuring how much it costs to attract each customer.
CPL measures how much you have to spend on all marketing channels to acquire a lead. If you have a $10,000 monthly marketing budget and receive 100 leads per month, your CPL is $1,000.
Cost per click is used only in Paid Search and Display Ads. You spend money on the ads and hope to receive clicks. The cost-per-click calculation is simply ad spend / number of clicks. Of course, not all clicks result in leads. Lead tracking tools like WhatConverts can help you identify the conversions that result in quotable leads.
There are some industry benchmarks that you can use as baselines for the target CPL. PopUpSmart shows that CPL varies based on the marketing channel and industry.
Different channels have different CPLs. However, just because one channel is cheaper doesn't mean it's more effective. If one channel delivers more valuable leads than another, it may be worth it for that channel to have a higher CPL.
Different industries have different CPL targets as well:
These benchmarks can guide your ideal CPL, but you must also account for your conversion rate and your sale value. We'll go into greater detail on these two metrics below.
Your CPL will vary across marketing channels, but it’s wise to know your overall CPL across all channels:
Total Marketing Spend / Total Number of Leads = Cost Per Lead
You can also break down your CPL by marketing channel:
Google Ad Spend / Google Ad leads = CPL for Google Ads
SEO spend (agency fees + freelance writer fees ) / organic leads = CPL for organic search
You may also want to break down your CPL for different customer segments. Some companies have ICP clients (ideal customer persona) who are more valuable than their other clients. You may run targeted advertisements designed to attract these specific ICP leads.
In that case, the calculation would look like this:
ICP Ad Budgets / ICP Leads = ICP cost per lead
As you can see, CPL doesn’t have to be a single metric that defines your business. You may have a different CPL calculation depending on the marketing channel and the type of lead you’re getting.
Every company has a different idea of how much they’re willing to pay for the lead. You should consider two big factors when identifying your target CPL.
If you sell an expensive product or service, you’re willing to have a high CPL. You need to have a low CPL if you have low margins. A company selling $5,000 products can afford a higher CPL than a company selling $200 products.
This metric refers to your lead-to-sale conversion rate because not all leads result in sales. You can have a high CPL if you’re converting most of your leads to paying customers. If you only convert a fraction of your leads to sales, you must keep the CPL low.
Once you know how much you’re spending for each lead, you can determine whether your marketing is profitable. CPL data helps you identify the marketing channels that deliver leads at the lowest CPL.
Of course, it’s not enough to know that one channel is delivering a low CPL. You must also figure out how much those leads are worth.
Let’s say you have a $500 CPL on Google Ads and a $1,000 CPL on LinkedIn Ads.
Before you start shifting more marketing spend towards Google Ads, you need to evaluate the quality of the leads. Are all the leads from Google Ads quotable? What’s the quoted value of these Google Ads leads? How many of the quotable leads are turning into sales?
You might have a high CPL on LinkedIn, but that’s not the whole story. If most leads are quotable, high-value leads that convert to customers at a high rate, LinkedIn may still be the better marketing channel.
WhatConverts helps businesses and marketing agencies calculate their lead value. The software captures every lead from every marketing channel, storing leads in a dashboard where you can mark them as quotable and assign quote value. These additional metrics provide the context to determine if your cost-per-lead is at a reasonable level.
Watch the video below to see how one agency uses WhatConverts to show clients the value of their marketing.
The main difference between WhatConverts and other marketing analytics platforms is that WhatConverts captures individual lead data. The platform prioritizes revenue-related metrics such as:
Your cost-per-lead should come in at less than your lead value.
lead value = average sale value x conversion rate
For example, If your average sales value is $4,000, and you’re converting 25% of leads to sales, each lead is worth $1,000. Your job as a marketer is to ensure your CPL comes in well below $1,000.
If you’re spending $10,000 on marketing each month, you need to get at least 11 leads per month to break even. If some of these leads are non-quotable leads, or if you have a month in which your conversion rate dips below 25%, you’ll need to get even more leads to break even.
This point is illustrated in the video below. This WhatConverts user tracks his client’s Google Ad campaigns in WhatConverts. His clients get a good return on ad spend, but they’re leaving a lot of money on the table because they’re not closing more leads. The client is currently getting a 4:1 return on ad spend. If they increased their lead to sale rate (conversion rate), they could get a 14:1 return.
Create a free trial account or see WhatConverts in action via a live demo. We’ll answer questions and guide you through how to best leverage our tool to measure your marketing returns in dollars and cents.
One of our marketing experts will give you a full presentation of how WhatConverts can help you grow your business.Request a Live Demo
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