Marketing and paid social campaigns are essential to driving growth and expanding your business. And yet, most marketing teams continue to struggle with attributing engagements to conversions and profits. That's where cost per lead - or CPL - comes in.
Obtaining 1,000 new customers is great for business, but only if you see a positive return on your ad investment. By calculating and monitoring your CPL, you can evaluate precisely how cost-effective your marketing efforts are.
In this article, we're going to discuss the benefits of cost per lead over other metrics. We'll provide you with a reliable way to calculate your CPL, help you to identify effective costs, and explore how CPL optimisation is essential in a good content strategy.
Why cost per lead is important
When you drive leads through inbound marketing efforts, it's imperative that you prove the return is greater than the cost. Without monitoring, you're left guessing as to how profitable your marketing efforts are.
CPL is a vital marketing metric used to measure your campaigns' success and determines if your budget for new leads is better spent in other channels. We define a “lead” as someone who interacts with your business due to your marketing material and expresses an interest in your product or services. This could be by downloading an ebook, booking a consultation, providing contact information like email addresses, or triggering a phone call with your sales team. Ultimately, generating leads is about building trust — using low-intent keywords to produce conversions with greater value is one example of lead generation.
Cost per lead is a tangible figure assigned to each prospective customer. For example, ten new contacts at the cost of £100, equals a CPL of £10. We'll provide you with a more accurate lead calculator later, but simply put, CPL allows your team to understand your current ROI and conversion rates, and better estimate future budgets for acquiring new leads.
Cost per lead vs cost per acquisition
If there's a cost, marketers have made an acronym to describe it. Cost per acquisition - CPA, also known as Customer Acquisition Cost - is another valuable piece of information for measuring campaign revenue. And while it might sound similar to cost per lead, their usefulness varies from one department to another.
While CPL compares the cost of marketing with exposure to potential customers, your CPA compares the cost of marketing to the amount in sales that it generates. Cost per acquisition is an important metric to monitor, but it can take months for B2B companies to collate accurate CPA figures, and so it offers the most value to your chief financial officer (CFO). CPL, however, is perfect for marketing departments that need data to make informed decisions in a shorter period of time.
When you generate leads, you should identify where they sit in your sales funnel to accurately measure their value. For example, a lead classified as an SQL, is much more valuable than an MQL. Monitor all leads, and you’re prime for campaign success.
- Marketing Qualified Lead (MQL)
A marketing qualified lead is more likely to buy than a just plain lead. They’ve shown a clear interest in your products or services, and so they’ve moved down the funnel. They’ll need a little more nurturing before they’re ready to buy.
- Sales Accepted Lead (SAL)
This is where the handoff occurs between marketing and sales. While the two departments often think of leads differently, they have to align here. Without unity, valuable leads could fall through the cracks.
- Sales Qualified Lead (SQL)
Sales qualified leads will show unquestionable interest in something you can provide. They’re asking questions, and they’re looking for more information about your services. This is where sales teams convert them from leads to customers.
To help explain their differences, let's go back to the assumed figures we mentioned earlier. Your £100 investment that generated ten new leads, provided you with a CPL of £10. Now, if you convert 20% (or two) of those leads into real-world sales, your CPA becomes £50.
You want sales. So why do we measure leads when we prefer to see acquisitions? Focusing too highly on optimising your CPA can handicap your businesses' ability to grow by reaching fewer users.
Why a lower cost per lead isn’t necessarily a good thing
The most crucial part of evaluating any marketing strategy — was it cost-efficient?
Any salesperson will tell you: not all leads are created equal. You can throw buckets of money at marketing campaigns and walk away with leads. Likewise, you can produce budget batches of information that cost pennies and deliver nothing. You need to find the optimal cost with a lead calculator.
A lower cost per lead is desirable, but you shouldn't put budgeting before a good strategy. Consider building an ideal customer profile for your business. The more users that fit this profile, the better your conversion rate will be. Evaluate your customer base, distribute them into categories that share common qualities, and build profiles of these personas. This is your target audience. Armed with better information, you should be able to produce more qualified leads through your content marketing, like Facebook ads.
It's also essential to identify the Customer Lifetime Value - or LTV - for your average client. If your acquisition cost is £50, and your lifetime value is £70, then you're only making £20 profit - based on a 100% conversion rate - over the course of your customer interaction. However, a more expensive lead costing £100, which returns £200 on average, is a much better prospect for creating a sustainable business. Find out how to calculate your LTV.
Average cost per lead
The industry average CPL can vary wildly with the sector, company size, and marketing channels. Gauging the average cost per lead is great for setting an expectation, but it isn't broadly representative.
Recent studies by Marketing Charts, Hubspot, Socedo, Survey Anyplace, and the Integrated Marketing Association have shown that while retail leads typically cost around £25, technology-centric lead generation for specialists, like those in SaaS, could cost upwards of £150.
This doesn't mean that technology companies should assume they'll lose money or see a lower ROI than retail companies. Remember, these averages are comparative metrics for deploying your budget. As benchmarks, they have little value, as you should be comparing yourself to market leaders within your specific area of expertise. LTV also plays a significant role in monetary returns, so tech organisations are likely to sell fewer but more valuable products than other industries.
Ad cost calculator
Paying for clicks using an untested and new marketing strategy can be a considerable risk. Before making decisions about your future ad placements, develop a clear expectation of your ad costs, and stick to the budget.
There are plenty of ad cost calculators on the internet, but we like this one from HubSpot. It covers the core components of marketing costs and leaves out the metrics that could muddle the numbers — unless you've collected data from extensive ad campaigns before.
Plan with caution, though, as ad calculators are only as accurate as your pre-campaign valuation. The actual cost of your ads will rely on several other factors that most online calculators can't account for. For example, if you're primarily buying social media ads, you'll end up with a very different ad cost than that of email ad campaigns and trade shows. And, as we mentioned earlier, cost and success differ significantly in various industries.
Evaluating your ad expenditure before a campaign is important, but analysing the effective, or blended, cost post-campaign is essential. Blended CPL is the total sum of leads that your advertisements have generated. Remember, this doesn't include all leads within a fixed period and is only relevant to clicks on each specific campaign.
To calculate your effective CPL, you should divide the entire cost of your campaign by the number of leads that it generated, but only after removing contacts from other ads, organic leads, and unpaid connections.
For example, in the space of one month, your business generated 500 new leads. 50 of those were organic leads, like those from word of mouth, or finding your company in a google listing. A further 200 clicked onto your webpage via a different campaign. Your sponsored social media posts cost £10,000, and you paid a further £2,000 in social management fees.
Your effective cost would be:
£12,000 / 250 = £48 per lead
As a marketer, it's crucial that you identify your target CPL. If you require conversions, a higher cost per lead might produce a higher quality lead and an overall lower customer acquisition cost (CAC). If you want quantity, you might want to lower your CPL - even if the leads aren't as qualified, you'll gain more interactions and better exposure.
Finding the optimal cost isn't always so simple, and working alongside a team of social advertising experts could prove invaluable. With the right tools for analysis, weekly reports, and a combination of creatives and statistical pros, you'll be better positioned to make the most of every advertising penny, ensuring your paid social media is effective and on budget.
Cost per lead formula for excel
Now that we've covered the importance of CPL let's discuss how we accurately record it. Using an easy-to-access program like Microsoft Excel is the perfect way for calculating your cost per lead, as well as managing your CPA and recording project stats.
A basic cost per lead spreadsheet only takes a few minutes to set up. You need to program the following formula into your cells: total marketing spends / total number of leads = CPL. Don't forget to remove any non-related leads from your calculations.
If you're new to Excel, see this video for a visual explanation.
Marketing analytics like those Kurve provides collates all of your important data, so you can identify the lead source, qualify leads, and calculate cost per lead and annual revenue all in one report.
When it comes to generating leads, Google, Facebook, Instagram, LinkedIn, Twitter, and even TikTok are some of the best platforms for you to apply cost per lead to your marketing strategies and drastically increase your clientbase. In fact, when Seatfrog looked to us to enhance the effectiveness of paid social, we grew their user base by over 400%.
If you’re ready to drive prospect growth, contact our team today.