As a marketing leader, knowing how much you spend acquiring new leads is essential to creating a high-performing and cost-effective marketing strategy. Even more important is knowing what your Cost Per Lead Per Channel is without having to dig for it.
In sales, Cost Per Lead (CPL) tells you how much on average it costs to acquire new leads from your marketing efforts. CPL is similar to Customer Acquisition Cost (CAC), with some differences.
In order for you marketing efforts to be valuable, you need to know how much you are getting for everything that you spend; that’s where cost per lead comes in. At the very least, the money you spend to acquire leads should not exceed the money those leads add to your business. Ideally, you want your CPL to be as low as you can get it while still maintaining lead quality.
Tracking your CPL helps you know if your marketing strategy is profitable and starts you down the path to optimizing how you capture leads. It also allows you to compare it to the average cost per lead by industry, so that you know how your company marketing efforts are stacking up against your competition, and whether or not you need to be making any adjustments.
Knowing your overall CPL is important. But if you’re looking to efficiently invest your marketing dollars in the channels that produce the best leads, you will need more details than a general CPL offers. Calculating the average cost per lead by channel allows you to optimize your costs as an advertiser by focusing more on those channels that are most likely to provide greater leadacquisition for everything you spend. Here’s an example to better illustrate why these metrics matter:
Say you’re managing a basketball team and your team as a whole averages eight points per player, per game. You decide to select your starting lineup and assign playing time based off of that number. The problem with picking a starting lineup and assigning playing time based off of this number is that it doesn’t tell you how much each player contributes individually. You could be starting a player that averages four points a game rather than one that averages 20 points. That is not a recipe for a win and neither is deciding which marketing channels to invest your money in with only a general CPL and not a Cost Per Lead Per Channel (CPLPC).
Separately tracking the performance of each of your marketing channels with a metric like the one below significantly cuts down on workload. Doing so allows you to stop spending time manually creating reports before you can discover insights. With a CPLPC metric, you can immediately begin looking for insights to optimize your marketing efforts based off of what the data shows.
If the metric above were created with data from your business, you could see a consistent number of leads came in from March 26 to May 7. During that time, Google consistently provided 95-100 leads compared to other times during the year. Knowing that, you can review what marketing efforts helped create that outcome to create similar results again.
Say you are spending close to the same amount of money on Facebook advertising as you are on Google advertising and the metric below was also created with data from your company. Looking at the Google and Facebook CPL metrics reveals that Google produces more leads than Facebook does with a little higher marketing spend. That means your CPL for Google is better than your CPL for Facebook.
It is worth noting that Facebook produced a steady 45-51 leads each week for most of the year. Google was also quite consistent at 85-100 leads each week throughout the year. The fact that there are no significant dips could mean your product doesn’t suffer from seasonality and can provide steady sales throughout the year.
After some more digging, you realize the leads Facebook produced were higher quality and resulted in a higher average sales amount than your Google leads. That is important information to know when optimizing your marketing strategy. It’s important to remember that quantity doesn’t always mean quality.
TIP: Aside from having a higher average sale value, some channels that cost more could provide customers with a higher lifetime value. A higher LTV will reduce your Churn Rate and also reduce your CAC.
The first step to calculating CPL is to define what is a lead for your company. Let’s say you decide to define a lead as anyone who gives you at least their name and a method to contact them, like an email or phone number. Once you have that defined, you can use a cost per lead formula.
For a basic CPL calculation, you take the total amount of money you spent on acquiring leads in a specific time period and divide that total number by the number of leads you received in the same period of time. This is how to calculate cost per lead:
CPL = Total ad spend / Total leads gained
Here’s an example. Say you spent $3000 on marketing during the month of August and you acquired 300 leads during that time. Here’s what the math would look like.
3000 / 300 = $10 per lead
Your average cost per lead would be $10. To truly understand this number, you need to also know your lead value.
To figure out your basic lead value, you need to know your average sale amount and your average conversion rate. Once you know those things here is what the lead value equation looks like:
Lead value = Avg. sale amount * Avg. conversion rate
Here’s an example of this equation in action. Say your average sale is $50 and your conversion rate is 15%.
25 * .15 = 3.75
Your average lead value would be $3.75. This is a low lead value compared to some industries. Keep in mind that lead values will vary drastically depending on your industry and the types of products you sell.
This number lets you know you should not be spending more than $3.75 per lead in your overall marketing efforts.
To effectively optimize your marketing efforts, you need to know the cost per lead for each of your marketing channels. Knowing which channels are cheaper than others helps you decide which channels to spend more or less money in.
Calculating your Cost Per Lead Per Channel (CPLPC) is the same process as calculating basic CPL. Here’s the formula.
CPLPC = Total ad spend in specific channel / Total leads gained from that channel
If you spent $250 in May on LinkedIn advertising and received 30 leads from LinkedIn during that month, here is what the math would look like:
250 / 30 = 8.33
Your CPL for LinkedIn would be $8.33. This is good information to know, but it’s not useful without also knowing either your general lead value or your LinkedIn lead value.
Here’s how to calculate your lead value for a specific channel:
Channel lead value = Avg. sale amount from channel * Avg. channel conversion rate
Say your average sale from a LinkedIn lead was $200 in May and your conversion rate for LinkedIn leads in May was 5%. This is what the equation would look like:
200 * .05 = 10
Now you know that a LinkedIn lead is worth $10, you shouldn’t spend more than $10 for a LinkedIn lead. When you compare your LinkedIn lead value with your CPL for LinkedIn, you can see that your marketing efforts in May on LinkedIn that yielded an $8.33 CPL were successful because they came in under your $10 lead value for LinkedIn.
The metrics shown above were created with Grow. The data to create the metrics was pulled from Google Analytics, Adwords, and Facebook and pushed into Salesforce. Once the data is in Salesforce, it is pulled into Grow to be visualized in the metrics shown above.
To see if the lead tracking CRM and social media platform you use can be visualized with Grow, view our integrations here.