Cost Per Lead (CPL) is a common growth marketing metric used to determine how efficient a particular marketing campaign has been in acquiring new leads.
CPL is seen most in use with judging the quality of advertising campaigns, but it applies widely to any marketing campaign such as an event, a sponsorship or a giveaway where meeting new prospects and piquing their interest is the goal.
Fractional CMOs frequently cite CPL as a key metric on the customer journey. CPL marks the point where the prospect has “raised their hand” in a way that indicates potential interest in a sales discussion.
Note that CPL and CAC are not the same thing, though they are frequently confused. Nor is CPA the same as CPA.
- CPL is the average marketing cost for acquiring a single lead, prior to qualification.
- CAC is Customer Acquisition Cost and shows the average cost of acquiring a single customer over a specific period
- CPA is the same as Customer Acquisition Cost or Cost to Acquire a Customer… i.e. the cost to completely land that fish and get the sale.
Keep in mind, just because a Lead says they are a lead, doesn’t mean they actually are.
People fill out forms for all kinds of reasons, some of them not useful to us and the growth process. Forms are sometimes waylaid by bots and time wasting secret shoppers.
For most B2B businesses, the Sales team takes the leads from this process and qualifies them before declaring them to be Sales Quality Leads (SQLs). Then then can continue on their customer journey and get more valuable in your hands.
The Cost Per Lead Formula:
To calculate Cost Per Lead, use the following formula:
Cost Per Lead (CPL) DEFINED
CPL = Total Cost of Campaign / Number of Leads Generated
To compute the CPL formula, you’ll need to know the following performance numbers from your marketing campaign:
- Total Cost of Campaign: You should include all expenses associated with running the campaign. As a fractional CMO, I highly recommend including all advertising costs, creative production, event venue rental, mailing followup, marketing software, and any other related expenses. If specific people were hired just for this event or campaign, they should be included in the production costs. However, the costs for regular staffers on your team (who work on multiple campaigns usually at once) should not be factored in to CPL.
- Number of Leads Generated: What were the total number of new leads or prospects acquired as a result of the marketing campaign or event? This should be a raw number, with minimal cleaning, except to remove obvious non-qualified responses. An example would be a contact who filled in “asdf” or other nonsense as their name in the contact form. Otherwise, a regular person filling out your form would be included in CPL at this point and only later be weeded out by Sales if they are not qualified.
Depending on what you need to find out, you can calculate your CPL for any time period you like. By the day, month, quarter, or longer. Feel free to segment your data by campaign, channel, market, and more.
How Do I Calculate Cost Per Lead?
It is simple to calculate Cost Per Lead with the formula shown above.
Here’s an example of how to calculate the CPL using a fictional company in San Diego called GoodCompany. GoodCompany is a successful manufacturing company at $10M ARR with an AI-powered imaging product that allows businesses to automate the process of creating 360 degree product images for their sales teams to use.
Recently, their monthly profitability goals have included the mandate to keep overall CPL costs below $250/lead. Let’s see if they are hitting the mark.
Here’s the facts:
- GoodCompany had five digital advertising campaigns running in April:
- $5,000 spent on Facebook/Instagram
- $5,000 spent on LinkedIn
- $28,000 spent on Google Ads
- $5,000 spent on TikTok Ads
- $15,000 spent on programmatic ads and retargeting
- GoodCompany also hosted an $10,000 event at the San Diego Zoo for 100 B2B founders with drinks and influential speakers in the branding space.
- GoodCompany got the following results from their efforts:
- 45 leads from Facebook/Instagram
- 75 leads from LinkedIn
- 95 leads from Google Ads
- 10 leads from TikTok Ads
- 50 leads from programmatic ads and retargeting
- GoodCompany also got a large number of leads from their Zoo event
- 35 leads from the San Diego Zoo event
Let’s add up these results and see what we get:
Total Leads in April
35 + 50 + 10 + 95 + 75 + 45 = 310 leads
Total Marketing Dollars Spent In April
5000 + 5000 + 28000 + 5000 + 15000 + 10000 = $68,000
Overall CPL for April
$68,000 / 310 leads = $219 Cost Per Lead (CPL)
Good news! GoodCompany has kept their costs under control while delivering leads.
This overall figure, however, hides a lot of interesting information about the productivity of each of these distinct channels. Let’s get more granular:
CPL for Facebook/Instagram
$5000 / 45 = $111 per lead
CPL for LinkedIn
$5,000 / 75 = $67 per lead
CPL for Google Ads
$28,000 / 95 = $295 per lead
CPL for TikTok Ads
$5,000 / 10 = $500 per lead
CPL for Programmatic Ads and Retargeting
$15,000 / 50 = $300 per lead
CPL for San Diego Zoo Event
$10,000 / 35 = $286 per lead
How Useful Is It To Know Your CPL?
A fractional CMO looks at CPL results regularly as leading indicators of potential quality lead productivity. However, they are not the final answer. Some leads are very valuable and others are a dime a dozen. That won’t be clear until later.
CPL shows how successful a given campaign or channel has been in delivering raw leads. Later, you need to use CAC and CLTV to measure the value of a campaign against the lifetime value of a customer.
If the company were to cut off the campaigns that are more expensive and devote the entire budget to the cheapest CPL channel, they are likely to be disappointed in the results.
Brand awareness and conversion are built over the course of multiple touches along the customer journey. This journey involves multiple digital stops along the way, not just one!
Discovery might happen on a social media channel like LinkedIn or Facebook. Research might happen on Google Search. Conversion might happen via programmatic retargeting. You will need a presence everywhere your potential customers might learn about you.
When considering CPL, you should also think about how the medium of the contact matters to the quality of the lead. Generally, leads generated at quality live events are warm and well-educated, vs digital leads that might involve filling out a form quickly.
What Is A Good CPL?
Cost Per Lead is a critical metric for businesses, especially those that rely on digital marketing. Cost Per Lead calculations are used to evaluate the efficiency and return on investment (ROI) and Return on Ad Spend (ROAS) of lead generation efforts.
When all is said and done, a lower CPL is better than a higher CPL, but only if it leads to profitable growth.
I have an example to share from my career as a fractional CMO. A large luxury retailer was used to spending $50-100 per lead for potential phone sales of their products. As an experiment, they launched a digital campaign that gave small rewards to targeted prospects for answering a survey about their products. The experiment yielded a flood of leads at a cost of just a few cents per lead… but the leads were garbage.
This example shows that Cost Per Lead is really just an indicator that shows you where you are, vs where you might want or need to be.
There have been industry research studies that show average CPL for lots of industries. These can be a good starting point for planning purposes. However, in my experience, they are generally not realistic once the “rubber hits the road” with ads. Only after a short period of actual testing and spend will you know what your benchmark CPL is for a specific channel.
The more granular you can be with your campaigns, the easier it is to know what a good CPL is for each channel.
If you know, for example, that 10% of your leads from LinkedIn convert into good customers at a CPL of $250, then an OKR goal could be set for your fractional CMO to find multiple ways of lowering that cost without affecting the quality of the lead flow. It could also be a goal to increase the number of leads produced without getting a corresponding rise in CPL costs.
Either way, a lower CPL can lead to better efficiency, better ROAS and happy investors.
How Can I Lower My Company’s CPL?
Bringing down Cost Per Lead for a marketing campaign is a multi-targeted exercise. A fractional CMO can help you reduce CPL with a combination of strategic approaches focused on efficiency, targeting, and optimization.
Here are ten strategies to help reduce your CPL:
1. Refine Your Narrative: Adjust Target Audience and Messaging
- Precise Targeting: Define your target audience based on industry, company size, and other relevant factors to ensure your marketing efforts are directed towards those most likely to convert. Put these data points in your ICP and Personas and distribute them to vendors, stakeholders and employees so everyone knows who the customer is.
- Tailored Messaging: Craft messaging that speaks directly to the pain points and needs of your target audience. Researching and documenting well-considered pain points that speak honestly to the hopes, fears and aspirations of your potential customers increases the likelihood of attracting high-quality leads.
2. Get Optimizing: Test and Fix Those Landing Pages
- Get Clear on Your Value Proposition: Ensure your landing pages have a clear and compelling value proposition. Clearly communicate the benefits of your product to encourage lead conversions.
- Streamline Those Forms: Minimize form fields to reduce friction and make it easy for visitors to submit their information. Strike a balance between gathering necessary data and keeping the form short.
3. Start Writing: Implement Useful Content Marketing
- Educate with Content: Create valuable and educational content that addresses the challenges your target audience faces. This can attract organic traffic and nurture leads over time.
- Put Up Gated Content: Offer premium content such as whitepapers, eBooks, or webinars in exchange for contact information. This can be an effective way to generate high-quality leads.
4. Focus Your Selling: Utilize Account-Based Marketing (ABM)
- Focus Those Campaigns: Implement account-based marketing strategies to target specific high-value accounts. Personalize your marketing efforts for each target account to increase relevance.
- Try a Multi-Channel Approach: Use a combination of channels such as email, social media, and targeted advertising to engage key decision-makers within target accounts.
5. Power Up Online: Improve Your Digital Ad Campaigns
- Go For Keyword Dominance and Optimization: Optimize your paid advertising campaigns with relevant keywords to ensure your ads are shown to the right audience.
- Ad Copy A/B Testing and Machine Learning: A/B test different ad creatives, headlines, and calls-to-action to identify the most effective messaging.
6. Be Picky and Choosy: More Lead Qualification
- Score those Leads: Implement lead scoring to prioritize and focus efforts on leads with the highest likelihood of conversion.
- Reexamine Qualification Criteria: Clearly define criteria for what constitutes a qualified lead. This helps in ensuring that marketing efforts are focused on leads with the potential to become customers.
7. Learn the Journey: Explore Your Conversion Pathways
- Map Out The Customer Journey: Understand the customer journey and identify potential points of friction. Streamline the conversion pathways to make it easy for leads to progress through the funnel.
- Automate Your Workflows: Implement marketing automation to nurture leads through automated workflows, delivering relevant content at each stage of the buyer’s journey.
8. Get the Green Eyeshade: Negotiate Down Advertising Costs
- Vendor Relationships: Build strong relationships with advertising platforms and negotiate costs, especially if you have a consistent and significant advertising spend
- Agency Relationships: These are often charged as a percentage of the B2B company’s overall media spend. Negotiating down the cost of this relationship can save thousands and help a company grow faster.
- Sponsor & Influencer Relationships: Quarterly and annual fees for these important relationships should always be under active consideration. Without being “cheap,” how can your relationship work harder for you? Could the influencer throw in a few more freebies?
9. Keep Watch: Continuous Monitoring and Optimization
- Crunch the Data: Regularly analyze performance metrics and identify patterns and trends. Use data to make informed decisions and optimize campaigns.
- Iterative A/B Testing: Continuously test and iterate on your marketing strategies based on what works best for your audience. Be willing to adapt to changes in the market and customer behavior.
10. Share the Love: Customer Referral Programs:
- Incentivize Referrals: Encourage existing customers to refer new leads through referral programs. Word-of-mouth referrals can be a cost-effective way to acquire new customers.
By combining these strategies and monitoring the results, you can systematically work towards lowering your CPL and improving the efficiency of your lead generation efforts for your B2B SaaS company.
Keep in mind that these efforts will require ongoing adjustments. The market and customer behavior are always subject to change – even overnight.
Cost Per Lead Calculation Is Good For Growth
Analyzing CPL is essential for optimizing marketing strategies, allocating budgets effectively, and comparing the performance of different campaigns.
But be sure to keep an eye on overall ROAS for your entire funnel, understanding that it is best understood as a holistic enterprise. A good funnel needs a combination of both expensive and cheap campaigns to make it work.
It’s important to consider CPL in the context of the quality of leads generated and their potential to convert into customers. Focusing solely on minimizing CPL without considering lead quality will never result in an effective lead generation strategy.