What it means
Marketing produces attention; sales produce revenue. Leads are the hand-off between the two, and cost per lead prices that hand-off.
A trade show that costs $20,000 and yields 80 qualified conversations has a CPL of $250. A search advertising campaign that costs $6,000 and generates 200 form submissions has a CPL of $30.
Whether $250 or $30 is good depends entirely on what a lead is worth, which depends on how many leads become customers and what each customer is worth over time. The measure is only useful when leads are defined consistently.
A raw enquiry, a marketing-qualified lead that meets basic criteria and a sales-qualified lead that a salesperson has accepted are very different things, and a channel that produces cheap raw leads that never convert is more expensive than one producing costly leads that do. Most businesses track CPL at more than one stage, and the most important figure is usually cost per qualified lead.
CPL connects to the rest of the funnel through simple arithmetic. If a lead costs $30 and one in ten leads becomes a customer, the customer acquisition cost is $300.
If the average customer generates $900 of gross profit over their lifetime, the channel returns three dollars for every dollar spent. If lifetime gross profit is $200, the channel loses money however cheap the leads look.
This is why CPL should never be judged alone: the cheapest leads are often the worst. CPL also varies with scale.
The first $5,000 spent on a channel reaches the most receptive audience; the next $50,000 reaches progressively less interested people, and CPL rises. Marketers watch marginal CPL, the cost of the next lead, not just the average, and shift budget between channels as marginal costs change.
In practice
Real-world examples.
Example
A mortgage broker pays $45 per lead to an online comparison site, converts 8% of leads, and earns an average $1,200 commission per mortgage, giving a return of just over two to one.
Example
A B2B software firm finds its cost per marketing-qualified lead is $90 but its cost per sales-qualified lead is $450, because only one in five marketing leads meets the sales team's criteria.
Example
A dental practice tracks CPL by channel and discovers that its $2,000 monthly local radio spend produces four leads at $500 each while its $600 search budget produces 30 at $20 each.
Think of it
“Cost per lead shows how much you spend to get each potential customer into your sales funnel.
Formula
Calculation
Cost Per Lead = Total Marketing Spend on the channel or campaign / Number of Leads generated
Customer Acquisition Cost = Cost Per Lead / Lead-to-Customer Conversion Rate
Return on Marketing Spend = Gross Profit per Customer / Customer Acquisition Cost
Worked example. An accounting software company runs three channels in a quarter:
- Search advertising: spend $24,000; leads 800; CPL = $30
- Webinars: spend $9,000; leads 150; CPL = $60
- Industry trade show: spend $30,000; leads 120; CPL = $250
Conversion rates from lead to paying customer, measured over the following six months: search 4%; webinars 12%; trade show 25%.
- Customer acquisition cost: search $30 / 4% = $750; webinars $60 / 12% = $500; trade show $250 / 25% = $1,000
- Customers won: search 32; webinars 18; trade show 30
Average customer lifetime gross profit is $2,400.
- Return on spend: search $2,400 / $750 = 3.2; webinars $2,400 / $500 = 4.8; trade show $2,400 / $1,000 = 2.4
Ranked on CPL, search looks best. Ranked on customer acquisition cost and return, webinars are best, search second and the trade show third. The company shifts budget towards webinars and tests whether their CPL holds as spend rises.Case study
Seen in the real world.
A home improvement company generated leads through television advertising at a CPL of $65 and through a lead-buying service at $28, and management pushed budget towards the cheaper source for two years. Sales productivity fell steadily, and the sales director complained that his team was spending its days on dead ends. A funnel analysis by channel showed why: television leads converted to surveys at 40% and to sales at 15%, while purchased leads, which were sold to several competitors at once, converted at 12% and 3%.
The cost per sale was $433 from television and $933 from purchased leads. The company had been spending more per customer on the "cheap" channel.
It cut purchased leads by 80%, put the money back into television and a new referral programme, and sales rose 20% on a marketing budget that fell 10%. CPL is now reported only alongside cost per sale.
Watch out
Common mistakes.
- Optimising for the lowest CPL. Cheap leads that do not convert are the most expensive leads of all.
- Counting leads inconsistently across channels, so that a form submission in one is compared with a qualified conversation in another.
- Leaving staff time, agency fees and tools out of the spend, which understates CPL for labour-intensive channels such as events and content.
Questions
People also ask.
What is a good cost per lead?
One that, after conversion, produces a customer acquisition cost well below the gross profit a customer generates. The figure varies from a few dollars in consumer e-commerce to thousands in enterprise sales.
How is CPL different from customer acquisition cost?
CPL is the cost of a prospect. Customer acquisition cost is the cost of a paying customer, which is CPL divided by the conversion rate plus any sales costs.
Should CPL include organic leads?
Leads from unpaid sources such as referrals and search rankings have a cost too, in content, time and tools; including them gives a blended CPL, but channel-level CPL is more useful for decisions.
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