Unless you are The Coca Cola Company or another multinational corporation, chances are that you have a limited Marketing budget. And the problem with limited budgets is that…well, they finish. But before they finish, we want to get the best out of them, right? Today, we will learn everything about Cost per Lead from a beginner’s perspective.
And of course, why it’s important for getting the best possible results for your money.
Cost per Lead. Part 1: The Basics
But of course, before we see some ways to get better results for your budget, we need to have a good understanding of what a lead is. And subsequently, what does it mean for it to cost a certain amount of money.
So, let’s go right into it! Of course, if you are already familiar with the basics, you can skip this part and go directly to the next one.
What is a lead?
I could really answer this question in two simple words: potential clients. A lead is really just a fancy Marketing word to say that someone has shown interest in your product or business.
Now, how exactly can you measure this interest? In the offline world, a person can walk into your shop or office, or make a call for a restaurant reservation. However, it is a little bit different in the digital world.
In Digital Marketing, it is really important to set up your online presence and digital actions in such a way that you can easily track the exact number of leads. We can summarize this process in 2 main steps.
1. Defining your lead
Different businesses can define leads in different ways. However, the most popular one is a person who has submitted their contact information through a form on your website.
Image source: salesforce.com
Usually, users leave their contact information because they:
- Are requesting additional information about your product or service;
- Want to download a useful resource that you might be offering, such as an ebook or a whitepaper;
- Or are simply interested in a free trial or demo of your product;
- Want to join a membership or an online community.
Once the form has been submitted, you will need to have a couple of things set up in order to measure this person as a potential lead for your business. Let´s see them!
2. Pixel configuration
To be able to measure the number of leads coming from different Marketing channels, you will need to do some configuration beforehand.
Let’s say that you are running Marketing campaigns on Google Ads, a third-party advertising platform that has no connection to your website whatsoever. However, when you pay for ads on Google, you want to know your results, right?
You want to know how many people Google actually sent to your website. Without that, you will have no clue if your money was actually spent efficiently. Or which campaign you need to focus on.
For this reason, you will need to establish a connection between your website and your Marketing platform. In this example, we are talking about Google, but this connection is obligatory for practically any digital channel. You need to make your website communicate and exchange information with it.
1. Thank you page
Your first step is to create a simple page that will show up right after the user has submitted their form.
Image source: dribbble.com
The reason why you need this page is because it isn´t accessible from any other part of your website but your form.
This way, if a person reaches it, you know for sure that they have submitted their contact information. Because there is no other way that they could have gotten there.
If this page was public and everyone could access it freely, it wouldn´t be a good indicator for measuring leads because you wouldn´t know who left their information. And who didn´t.
However, the mere existence of the thank you page isn´t enough. You, or your IT team, should:
- Configure the form to take the user to this thank you page once their information has been submitted. You can do this personally via the Contact section on your WordPress, or click here for more info on how to do that.
- Insert a piece of code within your thank you page. Let´s see how and why:
2. Conversion tracking
As we already mentioned, each advertising channel will require you to install a pixel on your website in order to communicate and exchange information with it. This is simply a piece of code that you will need to place on your pages and thank-you pages so you can collect data and measure your cost per lead.
You will need to install a new piece of code for every separate advertising channel. You can either ask your IT team or do it yourself.
Here are some useful resources for the most popular channels:
- Configuring conversion tracking for Google Ads
- Installing Facebook & Instagram pixel
- Conversion tracking for LinkedIn
Cost per Lead. Part 2: Everything Else
Well, I guess you could say that I wasn´t very creative with the title :). But hey, there are so many things to talk about when it comes to cost per lead that I don´t know how to sum them up in two words!
Anyways, let´s dive right into it:
1. Cost per Lead as a key metric
In Marketing, when we talk about metrics, we talk about results that help us decide whether to continue investing in a channel. Maybe we can decide to move the budget to another one, or simply distribute them in a more efficient way across all channels.
Cost per lead, also known as CPL, is a great metric that can help you decide whether you are investing in the right channel.
Imagine that a lead (potential client) costs you 100€ in Channel A, 75€ in Channel B, and only 50€ in Channel C. But let´s simplify it even more.
Let´s say that you are a hotel that offers luxury suites for 500€ a night, and you make ads on Facebook, Google, and LinkedIn to promote them. A person who is requesting more information about a possible reservation costs you:
- 100€ in Facebook
- 75€ in LinkedIn
- 50€ in Google
Of course, you want to spend as little as possible when acquiring a customer, right? If your budget is about 1000€ per channel, you can get 10 leads from Facebook, about 13 from LinkedIn, and 20 from Google.
In this example (which is completely invented, so please don´t let it bias you), you would get 2 times more reservation requests via Google than Facebook, for the same budget. So, you might decide to increase your budget in Google while decreasing the one in Facebook.
By seeing which channel provides you with the cheapest leads, you will be able to make better decisions and of course, get better results for less money.
2. The importance of Lead Quality
Of course, it is not all about the numbers! In many cases, cheaper leads is not always better. Think of a business school that sells specialized executive education programs to company directors with over 10 years of experience.
In this case, a lead that costs 100€ and meets the requirements (Director, +10 years of experience, enough money to purchase the program) is much more valuable than a 100€ lead who is an intern and doesn´t have any experience.
Of course, you should always try to lower your CPLs through campaign optimization, but don´t focus exclusively on numbers either.
Quality might not be as important for companies that sells consumer goods which are widely available for everybody and don´t require a previous lead qualification. For example, shops that sell beverages, make up, food or clothes.
However, a lot of businesses, especially those in the SaaS or B2B industries, require previous lead qualification. This simply means that a person needs to meet certain requirements to be able to purchase the product or service. For example, to have enough budget or to be a decision maker within the company.
In this case, spending money on cheap, low-quality leads is not always the most optimum strategy.
3. How do you figure out your optimum Cost per Lead?
A lot of companies wonder what is an average CPL that they should aim for. For some businesses, a lead that costs 100€ is really expensive, while for others it is among the cheapest possibilities.
To figure out the most optimum use for your budget, let´s see how a CPL is calculated:
Cost per Lead formula = the total amount of money you spent on a campaign / the number of generated leads
In this case, if you spent 500€ on a campaign, and 50 people requested additional information through your form, your CPL will be 10€. So far, so good.
However, it´s not that easy. Companies can be so different that it is practically impossible to say an average number that applies to everyone. But I can give you some guidelines to help you find out yours:
Industry and business model
Your optimum Cost per Lead will depend on your industry and business model. Obviously, a hotel that offers rooms for 50€ per night cannot afford CPLs above 50€ because there will be no profit in it. If a person staying one night in your hotel costs you 50€, and you spent 50€ to attract him with your campaign, there won´t be any margin for profits unless he stays for longer. In which case, you should also evaluate if it´s worth it.
However, a plastic surgery company that sells implants for 5000€ but only spends 50€ to acquire a single customer has huge profit margins! (Obviously, we are not including any additional costs associated with the surgery).
Here is a graph that shows the average CPL per industry:
The next variable that will have an impact on your CPL is your target.
In Marketing, a target is simply the audience that you are trying to reach with your Marketing efforts.
Typically, B2B companies whose target market is other companies tend to have higher Costs per lead. The main reason why is because, from a statistical point of view, companies are fewer in number than individual customers. So, you have less opportunities to gain a new client, and it takes more time to convince him.
In the B2B industry, the number of decision makers is higher, the purchase decisions are long-term, and they require more time and investigations. In many cases, potential customers can´t simply click on the ad and buy the product in the moment. They have to submit a form, schedule a call with the company, and wait for a personalized offer.
However, if you are selling products or services in the B2C industry, CPLs are typically (although not necessarily) lower. In this case, leads can directly purchase the product from your website, and the decision making process is much shorter.
Another important variable which will influence your CPL is the price of your products and services.
Not from the perspective of profit margins, because we already talked about that, but as a standalone factor. Price is important because it puts things into perspective.
Usually, the higher the price is. the longer it will take for your potential customer to make a decision. We already know that time costs money. Longer decisions means more research, and probably multiple ad clicks before making the decision is finally made. And you know, clicks aren’t precisely cheap!
So, you can’t expect a lead who is purchasing a 1000€ subscription service to cost as little as a lead who is purchasing a 7€ streaming service, such as Netflix. It could happen, but it is not the usual case.
Obviously, one of the most important variables that will have an impact on your Cost per lead will be your channel. Different channels have different CPLs benchmarks, and it is important to keep this in mind when figuring out yours.
Of course, channels can also work differently for everyone, especially depending on the sector.
For example, in the industry that I am currently working at (higher education), LinkedIn is probably the most expensive in terms of clicks. A click on LinkedIn can cost you between 5€ and 15€! However, the CPLs and the quality of the leads are surprisingly much better than other channels.
Facebook and Instagram are usually cheaper than LinkedIn, but as I already mentioned, it is also tightly related to the industry. Some industries, such as electrical appliances or makeup, might be doing better on Facebook than LinkedIn both in terms of clicks and leads.
And last but not least, a CPL will strongly depend on your goal, and what a lead means for you.
If you consider a lead to be someone who watched a video on your website, your CPL will probably be cheaper than someone who has to submit their personal data through a form. The reason why is because more people will watch the video than submit an actual form.
The easier the task, the cheaper your lead will be, but also less qualified because more people will do it.
How to reduce your Cost per Lead
The precise techniques for reducing your CPL will depend on the channel. Each one of them is different, and will require different strategies to help you find the most optimum cost.
However, there are some general tips that apply for the majority of channels:
As I explain in my article Search Engine Marketing for Beginners, relevance is probably the most important concept when it comes to Digital Marketing. Especially when we are talking about Google Ads.
In Marketing, relevance means that your target audience feels associated with your ad. An ad is considered relevant when two things are fulfilled:
- You have selected the correct target audience for your product. This means that you are targeting people who could actually have a demand for your product. For example, targeting first-year students with an ad for luxury homes is probably not going to be very relevant for them. However, targeting a family of two babies with ads for baby food is much more asserted.
- Your ad transmits the right message to your target. Your ad needs to be clear, straightforward, and include the answer to the question “Why do I need your product? How is it going to benefit me?”
If your ad reaches the people who could potentially be interested in it with the right message, more people will click on it. Which also means that your click is going to be cheaper. And naturally, you will reduce your CPL as well.
In many cases, especially when it comes to Google ads, one of the key ingredients of relevance will be keywords.
The term “keyword” is pretty much self-explanatory. It is a key word that describes your product to the public. So, make sure to do a proper keyword research before writing your text ads to ensure higher ad relevance.
3. Do a historical review of your ads
If your ads have been running for a few months, you have probably gathered enough historical data to conduct a performance reviews.
Usually, every channel has an Analytics section that provides you with important data on where your conversions have come from. Use it to increase your ad quality, make campaign optimizations, and boost the campaigns that are doing better.
Also, it is a great way to refine your target and get to know your audience much better. You should be doing historical reviews regularly, because the digital world is dynamic, and things are constantly changing.
4. Pause or/and change campaigns
If your campaign has been running continuously for a long time without any change, there is a high chance that your audience is “exhausted”.
This simply means that your ad has been showing up to the same people for multiple times, and they are not reacting to it any longer. Imagine that you have already seen an ad 10 times. At this point, you are either interested and have purchased the product, or simply ignore it because you are tired of it.
In both cases, your ad becomes ineffective because your audience is no longer responding to it. And, consequently, your CPL will start to rise consistently over time.
That’s why it is so important to be constantly optimizing and refreshing not only your ads but also your target audience.
5. Do retargeting
Retargeting campaigns are great because they allow you to reach people who have already shown interest in your product with more personalized ads. This means that they will be significantly more responsive to your second ad wave.
Higher responsiveness will also translate to lower Costs per lead, which is great news!
Wrapping it up
I hope you liked my article on Cost per lead for beginners!
CPL is a metric that is very individual to everyone, so any average numbers that people try to propose are probably not going to apply to you. Every CPL journey is different, so don’t worry if yours are starting out higher than the average for the market. Keep optimizing, and you will get there!
If you have any questions, don’t hesitate to let me know down in the comments below!
As always, thank you for taking the time to read my article, and see you in the next one!