Cost Per Lead: How to Calculate and Optimize It

Cost Per Lead: How to Calculate and Optimize It

What is your ultimate goal when running marketing and sales campaigns? It is to generate revenue for you and every other business. However, in order to do so, you must drive sales. And you can’t drive sales unless you have leads and know your cost per lead, or how much you spend on each lead.

Leads are people who have expressed a strong desire to buy from your company but have not yet committed to doing so. You’re unlikely to convert someone into a customer on your first encounter with them. Prospects must first be converted into leads, who must then be nurtured to conversion.

However, marketing costs money, and you may be unsure how much you’re spending just to generate leads. This is where the cost per lead (CPL) comes into play. But what exactly is the cost per lead, and how do you calculate it? Continue reading to find out the answer. Then sign up for Revenue Weekly, our email newsletter, for even more digital marketing advice!

What is Cost Per Lead (CPL)?

The cost per lead, or CPL, is the amount of money you spend on average for each lead you generate.

Marketing, as previously stated, is costly. And, because marketing is how you generate leads, you could think of your marketing budget as a way to pay for leads. The question is, how many leads do you get for your investment? How much do you charge for each lead?

That is what CPL enables you to determine. Perhaps you’re spending a lot of money but not getting many leads. Or perhaps you’re spending little money but generating a lot of leads. That second scenario is obviously preferable — the lower your CPL, the better.

Metrics Similar to Cost Per Lead

CPL isn’t the only such metric. You may be familiar with other metrics that relate to how much money you spend. It’s a good idea to make sure you understand the distinction between those metrics, so here’s a quick rundown of some cost-related metrics that are similar:

  • Cost per click (CPC): The amount of money you spend for each click on your paid advertisements.
  • Cost per mille (CPM): The amount spent for every 1000 impressions of an advertising or marketing material.
  • Cost per acquisition (CPA): The fee you pay for each person who purchases your goods or services.

It’s worth noting that all of those metrics, including CPL, measure how much money you’re spending. They do it, however, for different reasons — leads, clicks, impressions, and conversions.

Why is it Important to Know Your CPL?

We now understand what a CPL is. But why is it significant? What makes it worthwhile to monitor?

The answer is that your CPL shows you how much value you are getting for your money. You must generate leads in order to generate revenue, but you must avoid overspending on those leads. Looking at your CPL can help you determine if your lead generation needs to be improved.

If you have an unusually high CPL, it could mean one of two things. You’re either not driving enough leads or you’re overpaying. In either case, you should reconsider your marketing strategy. But you’d never know unless you checked your CPL.

How to calculate Cost Per Lead (CPL)?

How to determine your CPL may be on your mind. Fortunately, the procedure is fairly easy. Simply divide your overall lead-generating expenditures over the course of a certain time by the amount of leads you generated during that same period. If you had to put it in a formula form, it would be as follows:

Calculate Cost Per Lead

You should include any money you’ve spent on items that can aid in lead generation when calculating your overall lead generation spending. Typically, that refers to advertising expenditures, but you might also have made financial investments in other leadership development methods.

How to Lower Your CPL?

You want your CPL to be as low as feasible, as we’ve stated. What steps should you take to lower your CPL?

There are several approaches, and we’ll discuss three of the most effective ones below.

1. Test out different ads

Increasing the quality of your marketing to produce more leads is one of the best strategies to minimize your CPL. But how can you tell which modifications will increase your lead generation?

The solution is to conduct A/B tests. You can simultaneously run two distinct versions of a webpage, email, or advertisement as an A/B test. Both versions are visible to some people and not to others. You then check which version generates the most leads. Whichever it is, utilize that version going forward as your main version.

You will eventually have a marketing strategy that is optimized to produce the most leads if you continue this process frequently, testing each modification you make to verify that you always choose the superior option.

2. Invest less money in your marketing

One strategy to reduce your CPL is to drive more leads. But there is also the option of just spending less money to acquire them. You might try to lower your CPL by reducing the amount you spend on lead generation.

The catch is that this only works provided you continue to generate the same volume of leads. Your CPL will remain the same if your expenditure decreases but your lead generation does not. Therefore, you must find strategies to reduce expenses without compromising the effectiveness of your promotion.

Changing the keywords you’re bidding on is one approach to achieve this if you’re utilizing paid advertising. Find cheaper but equally effective terms for your audience instead of bidding on expensive, high-traffic keywords. Finding keywords that are very unique to your sector is the best method to do this.

Another strategy is to substitute some of your sponsored promotions with more natural marketing techniques like SEO (SEO). That’s not to say you should stop using paid advertising altogether, but occasionally you can spend less on your ads if you rely more heavily on SEO.

3. Hone your audience targeting

Finally, give significant thought to your marketing targets. If you weren’t targeting the correct audience, even if you managed to create a marketing strategy that worked brilliantly and scarcely even cost any money, it wouldn’t benefit you.

You must make sure you are targeting people who have a genuine interest in what you are selling if you want to create leads. Those are the folks who will be interested in you enough to take the lead.

Take the time to examine your client data and determine who is purchasing from you to accomplish this. Then focus your marketing efforts on those demographics.

Let OTT SEO Assist You in Improving Lead Creation and Decreasing Your Cost Per Lead

As we’ve just shown, lead generation plays a significant role in lowering your CPL. You may make up the difference and pay less for each lead by optimizing your lead generation marketing activities. Because of this, you ought to think about collaborating with a marketing company like OTT SEO.

Due to OTT SEO’s extensive experience with lead generation services, we are well-versed in how to optimize your marketing to increase leads and lower CPL. We can also assist you in determining the most effective techniques to lower the cost of your marketing and advertising efforts.