The average return from digital marketing ad spend (ROAS) is $2.87. While you probably do not want to hear this, there’s another acronym you should learn besides ROAS and that is CPL or cost per lead. Cost Per Lead is a valuable metric to quickly determine the effectiveness of a marketing campaign. It’s what we use at WolfPack Advising to help our clients understand their ROI.
So, let’s get into what CPL is, how to calculate it, how to use it to maximize your ROI, and finally some common questions.
Defining Cost Per Lead
Before we dive into the specifics of calculating CPL, let’s first define what it is. Simply put, CPL is the amount spent on acquiring a single lead through an advertising or marketing campaign. This metric helps marketers evaluate the efficiency of their campaigns by comparing the cost of acquiring a lead against the value that lead brings to the business.
For instance, if you spend $50 to obtain a lead you can compare that against the cost of the potential job opportunity. Additionally, you can factor in your lead conversion rate to determine the estimated total return on ad spend.
Cost per lead helps us determine if our marketing campaign is bringing in leads that are cost-effective for our business. Now, let’s get into how we calculate cost per lead.
Calculating Cost Per Lead
To calculate CPL, you’ll need to divide the total cost of your advertising or marketing campaign by the number of leads generated. Let’s say you spend $1,000 on a Google advertising campaign that generates 10 leads. Your CPL would be $100, which means that each lead cost you $100 to acquire.
CPL can vary over the lifetime of a marketing campaign so it’s important to monitor it month over month. To illustrate, at the start of most ad campaigns, there are some optimization delays or time it takes for a campaign to fully optimize. Therefore, in the beginning, your CPL might be higher. However, as the campaign optimizes, CPL should come down. Additionally, your conversion rate can improve as you look at conversion rate strategies and fine-tune your processes.
Let’s look into how we can use cost per lead to maximize our ROI in marketing campaigns.
Maximizing ROI with Cost Per Lead
CPL allows businesses to allocate their marketing budgets more effectively. By tracking their CPL, they can identify the most efficient campaigns and adjust their strategies accordingly. Rather than continually investing in less effective campaigns, businesses can focus on those that generate qualified leads at a lower cost.
Lead Tracking Metrics
Once you are easily able to monitor your cost per lead from each marketing campaign, you then can maximize your ROI. First, determine which marketing campaigns are delivering a good CPL. Then, focus on your conversion rate from lead to job completed to maximize the return on ad spend (ROAS).
For marketing campaigns that are returning high CPLs where lead costs are too high, this is where you can analyze the campaign to find out why, look at making optimizations, or kill the campaign altogether.
Ultimately, you should track your cost per lead against all of your marketing campaigns to ensure the effectiveness of the advertisement.
Frequently Asked Questions
What’s the difference between CPA (cost per acquisition) and CPL (cost per lead)?
CPL focuses on just the cost of getting the lead. CPA includes the cost of your office or team converting the lead to a customer. Most companies/sales teams have a conversion rate between 10% – 30% for every lead. So, if your CPL is $10 and your conversion rate is 50%, your cost per acquisition is $20 meaning you convert 1 of every 2 leads.
How does CPL differ from other marketing metrics?
CPL focuses specifically on the cost of acquiring a single lead, whereas other metrics such as Cost Per Click (CPC) and Cost Per Impression (CPI) focus on different elements of a campaign’s performance.
Can CPL be used for all types of marketing campaigns?
Yes, CPL can be applied to various types of campaigns such as social media ads, email marketing, and content marketing. Some campaigns though might be difficult to track CPL such as a billboard where you rely more on impressions than direct leads.
What is a reasonable CPL for most businesses?
The reasonable CPL varies significantly based on industry, target audience, and business goals. As a benchmark, businesses should aim for a CPL that is lower than the average lifetime value of each customer.
Keep in mind, customer acquisition costs will always be higher than the cost to keep a good client. However, your CPL should never be too high that you cannot make a return from the ad.
Our customers in home service-based businesses could see a cost per lead as low as $20. However, in insurance industries, the cost per lead can be over $100.
Understanding CPL and tracking it regularly can provide businesses with insights into the effectiveness of their marketing campaigns. By optimizing their campaigns for CPL, businesses can save money and maximize their return on investment (ROI).
If you are working with a marketing agency, be sure they are providing you with a cost-per-lead (CPL) breakdown. Agencies should provide a CPL to prove a marketing campaign is worth continuing. Then, depending on their scope of work, a marketing agency can coach your sales team on converting leads.