WHAT IS CPL (COST PER LEAD) AND HOW TO CALCULATE IT?

Cost Per Lead (CPL)—is the cost of a lead. It is the amount of money a business spends to get a potential customer who completes a free targeted action. This action can be sending a request for a consultation, downloading useful materials, subscribing to a blog newsletter, or following a social media page. A user becomes a lead when they provide their contact information to the advertiser, such as a phone number or email address.

What is it about?

• Why and how to calculate the cost per lead?
• What affects the Cost Per Lead?
• How to reduce the Cost Per Lead?
• Conclusions

Why and how to calculate the cost per lead?

A user who takes a targeted action (an action that the business owner or marketer wants them to take) is called a lead. The money spent to encourage that action is the cost per lead (CPL).

CPL is not only the name of a metric but also a model of online advertising where the main goal is to get as many leads as possible. This is different from pricing models like “cost per click” (CPC) and “cost per impression” (CPM), where you pay for clicks or views. With the CPL pricing model, advertisers pay only for user registrations, regardless of the number of impressions or clicks the ad receives. This type of promotion ensures a guaranteed return on money spent on online advertising.

The formula for calculating CPL is as follows:

CPL = Cost of Promotion / Number of Leads Obtained

Let’s look at an example of calculating CPL.

A seller of Japanese kitchenware invested $1000 in a Google Adwords campaign and generated 50 new leads. The cost per lead (CPL) for this campaign would be: $1000 / 50 = $20.

After that, we can determine whether the ad investment was profitable. This depends on the conversion rate of the landing page and the company’s average order value. If it were a subscription-based service, the calculations would be based on the customer lifetime value instead of the average order value. This metric should be considered in any case, as buyers may return if the communication with customers is done right.

Unlike CPA, where the key metric is the number of paid orders, CPL campaigns are usually larger and more complex. First, you get a lead. Then, you need to engage, retain, and move the lead to the next stage when they are ready to buy.

CPL campaigns focus on advertisers who can choose trusted and relevant publishers themselves. They are ideal for attracting customers through remarketing to end consumers via email newsletters, community websites, loyalty programs, reward systems, and other engagement tools.

In CPA, you never know exactly where the ads will appear because the publishers decide that. CPA campaigns are usually smaller but more complex.

“In CPL campaigns, advertisers pay for interested lead—that is, the contact information of a person interested in the advertiser’s product or service. CPL campaigns are suitable for brand marketers and direct response marketers looking to engage consumers at multiple touchpoints—through creating a mailing list, community website, reward program, or membership engagement program.

In cost-per-action (CPA) campaigns, the advertiser typically pays for a completed sale, including a credit card transaction. CPA is all about the ‘now’—it is focused on getting consumers to make a purchase at that moment.”—Cost per lead, Wikipedia

Why CPL is one of the key metrics for businesses

• CPL helps to allocate the marketing budget effectively by investing more resources in channels and campaigns that bring in the most targeted leads.
• Monitoring CPL helps to identify opportunities to optimize marketing campaigns and improve the overall ROI. To do this, it’s important to consistently compare lead generation costs with the revenue generated from them.
• CPL provides insights into the effectiveness of different lead generation tactics. You can create and offer gifts and bonuses that are most relevant to the target audience and competitive in the market.
• Focusing on CPL allows you to build long-term relationships with customers. Users will understand that they are valued and offered something useful, even without immediate payments. On the other hand, if you push website visitors to make a payment too quickly, conversions will drop, and company revenue will decrease.

It is recommended to compare lead generation costs with industry benchmarks and competitor results. This will help you objectively assess the competitiveness of your marketing efforts and identify areas for improvement.

What affects the Cost Per Lead?

CPL assessment depends on many factors. These include the business niche, company age and size, annual revenue, marketing budget, average check, customer lifetime value, and more. Consider how much effort and resources you are investing to get clicks from each platform. Some channels may need to be turned off or partially reduced. Often, the problem lies in simple things like a broken lead form or too few calls to action on the website.

Main factors affecting Cost Per Lead

• Marketing Channel. Paid ads with influencers can be expensive but often bring in active targeted followers, while budget giveaways can even harm the normal promotion of the page. The same goes for paid and organic traffic growth. If you are not ready to wait—invest in and work on paid leads.
• Target Audience and Segmentation. By identifying the right audience segments and targeting them with effective personalization strategies, you can get more leads at a lower cost.
• Content Quality and Relevance. Creating high-quality and relevant content helps attract the right audience and increase lead conversion chances. Focusing on providing valuable content that meets the needs and interests of your target audience can improve CPL.
• Conversion Process Optimization. This includes simplifying lead forms by reducing the number of fields and avoiding requests for information not needed for the target action. For example, if a user wants to subscribe to the news, there’s no need to ask for their phone number.
• Marketing Automation. Interactions with potential customers should be personalized and timely to effectively move them through the sales funnel.
• Sales and Marketing Alignment. Potential customers should be well-informed and interested before being handed over to the sales department.
• Lead Generation Tactics. A whole team of specialists should work on the landing page. If the business owner decided to save money and created the site using a builder, they should be ready for a higher CPL. Even with investments in ads, the web resource may not measure up to alternatives with well-thought-out marketing strategies and flawless design.

How to reduce Cost Per Lead?

It is not always necessary to reduce the cost per lead, as it may be high but still lower than its value. If most leads at a certain stage of interaction with the brand turn into buyers, and LTV significantly exceeds CAC, then the cost per click is profitable. However, if you notice that lead generation costs have increased and the effectiveness of advertising campaigns has not improved, try to reduce CPL. This can be achieved in several ways.

• Lower the cost per click. To ensure targeted traffic, work on ad copy. They should be informative and match the content of the landing page.
• Disable and add keywords. To maintain favorable positions in search results and avoid random clicks, regularly analyze keyword and phrase statistics. Add new relevant queries and remove irrelevant ones by preparing a list of negative keywords.
• Focus on medium- and low-frequency keywords. Short keywords are popular but often inaccurate and irrelevant. Low-frequency keywords bring in less traffic but it is targeted. Consider keyword competitiveness (KEI = number of queries per month² / number of search results). High competition starts at 100.
• Consider delayed conversions. Take into account the source of the ad where the user learned about the company or product and track the potential client’s journey. For example, the cost of a lead from retargeting on Instagram may include part of the cost of contextual advertising, SMM, and email marketing.
• Increase website conversion. A website with a high conversion rate increases the number of leads, reducing their cost. There should be plenty of lead forms, as well as attractive offers and ways to contact the company or subscribe to the newsletter.
• Improve the product. If you get many repeat customers, you can reduce the cost of acquiring new ones. Brand advocates and ambassadors, positive reviews, and case studies—all of these positively impact reputation and lead flow. Focus on the quality of products and services so that leads become more profitable and bring in new, free leads themselves.

Conclusions

Increasing the company’s potential client base allows for scaling and improving ROI. To attract and activate the target audience, you can use email newsletters, chatbots, telemarketing, contextual advertising, and many other marketing tools.

Before launching a website and ads, think about how you can convert page visitors into leads. What will make your target audience leave their contact details—a discount for registration, a free trial version of the product, a checklist, or something else?

For businesses with a high average order value, it’s important to expand the product line. For example, besides electronics, Apple also offers software and accessories. The average order value and customer lifetime value increase through cross-selling, which reduces the cost of acquiring new customers.

If the cost per lead (CPL) from a specific channel is high compared to other platforms, don’t rush to abandon it. Always analyze the customer journey and identify where potential buyers hesitate to place an order or work with you. Segment your target audience and regularly offer new lead magnets to help optimize CPL and increase its value.

Frequently Asked Questions