What is Cost Per Lead?
Updated: Mar 11, 2021
In my previous concept posts, we have already covered the concepts of Conversion Rate, Cost Per Click, and Customer Lifetime Value.
All these form a part of the important ‘Marketing KPI’s’.
Today, instead of just using this term as a jargon, I decided to talk a bit about what do you actually mean by Marketing KPIs.
To begin with, the full form of KPI is Key Performance Indicators.
These are key numerical metrics that you need to analyze, before, during, and after your marketing campaign.
While the list is quite long with the number and kinds of marketing metrics that you need to analyze, the most obvious one of course is Sales Revenue.
However, more often than not, another important metric, Cost Per Lead is ignored by a lot of marketers.
In this post, I aim to cover this concept in the most simplified manner and provide actionable points that you can consider to reduce your overall Cost Per Lead.
What is Cost Per Lead?
Cost Per Lead is a metric that directly creates a link of success between the advertiser and the publisher.
It’s a metric to measure how cost-effective your marketing campaigns are concerning the sales they generate in the form of leads.
Now that brings up the question of what do you mean by a lead?
Well, in its most basic sense, a lead can be any person, who is showing any sort of interest in your product and offer, by completing a goal.
Clearly, the goals for each organization might differ, some might focus around a purchase, while for others it might just be filling up a subscription form.
But whatever the goal might be, any person showing any sort of interest around the same is considered to be a lead.
So Cost Per Lead or CPL is a digital marketing pricing model through which the advertiser pays a pre-determined fee for each lead generated.
What is the Cost Per Lead formula?
In its most basic sense, to get the CPL, all you need to do is divide the total marketing spends by the number of leads generated.
This can be calculated easily using the 3 steps given below-
Step 1- Add up your total marketing spends
This includes the cost incurred in all of your Cost Per Click campaigns and any other advertising spends
Step 2- Count the number of leads generated
These are all the conversions that you gained from your advertising campaign.
Again, conversions may not necessarily mean sales, but basically the fulfillment of any desired goal.
Step 3- Divide the spends on marketing by the number of leads generated
The amount you get after dividing the numbers obtained from step 1 and 2 is the CPL
Now, let's look at an example
If I run an advertising campaign for The Marketing Empress where I try to promote my weekly newsletter (If you haven’t signed up for my newsletter yet, you can do that here. It includes latest Marketing and Advertising news delivered right to your inbox)
Say, I spent Rs. 500 for the advertising campaign (Total Marketing Spends)
And I received 100 leads from the same (Number of leads generated)
So my CPL would be 500/100 = Rs. 5
Cost Per Lead = Total Marketing Spends / Number of leads generated
Why do businesses use a Cost Per Lead campaign?
The CPL pricing model is most often used by direct response marketers.
So if you are trying to build a mailing list or trying your hand at affiliate marketing, you will use the CPL model.
This is because it directly creates a link with the amount of money you have spent and the number of leads that you have generated.
Also, this is a preferred pricing model because the marketer has complete control over the brand from the start till the end which is missing in other campaign strategies.
What are the benefits of the Cost Per Lead campaign?
Let’s look at a few Cost Per Lead campaigns benefits
1. Perfect Targeting
CPL campaigns generally target those consumers who are genuinely interested in what you have to offer.
Given that a form sign up does not require your consumers to invest anything, they are more likely to convert as well.
When you as an advertiser opt for the CPL campaign, you are paying only for the number of leads generated.
So on an overall basis, it proves to be an extremely cost-effective method.
Digital media anyway provides you with the benefit of measurability but it's, even more, when it comes to CPL.
It’s like, you get an in-depth understanding of your marketing efforts because you are made aware of your results directly.
4. Low Risks
When it comes to a CPC campaign, more often than not, there is a possibility of fraud whereby you are not sure of fake clicks.
But when it comes to CPL, the possibility of that is much lesser because you are making people act here.
The action can be a form sign up or anything like that.
How can you reduce your Cost Per Lead?
Given below are 5 ways in which you can reduce your Cost Per Lead
1. Get as specific as possible
An in-depth targeted audience works extremely well for your ad campaign because the target is most likely to convert.
Let’s say for example that I run a pet shop in Mumbai, and I am targeting an ad to teenagers, living in Mumbai, who like pets.
As against, targeting just teenagers.
This will generate more leads by keeping the spends constant, thereby reducing your CPL
2. Conduct A/B testing on your ads
Get an idea of what works better for you, A/B testing provides you with this and is a great way to ensure more lead conversion.
3. Check your analytics
Google Analytics provides you all the details in regards to your audience, this includes audiences by device, location, etc.
It’s important to utilize this information in your ad campaigns to ensure lesser CPL
4. Avoid Ad Fatigue
I have already covered the concept of Feature Fatigue, but there is also another concept of Ad fatigue.
It’s important to understand that your consumers are bombarded with a lot of messages daily.
If you keep pushing your ad again and again, it would lead to irritation and fatigue.
5. Set the perfect timing
If your ad is seasonal in nature, understand the perfect timing from the consumer’s point of view and push the communication around the same time.
Also read: What is Algorithmic Pricing?