Hampton Roads Business Weekly Blog

How to Calculate Cost per Lead

[fa icon="calendar"] July 24, 2015 at 8:00 AM / by Hampton Roads Marketing Now

cost_per_leadToday’s advertisements come in millions of shapes and forms. From digital to television to experiential and beyond, businesses have more creative freedom to reach new audiences and share their brand. With almost endless options for businesses to chose from, marketers need to understand one of the most important numbers before settling on an advertising strategy: cost per lead.

What Is a CPL?

Cost per lead (or CPL) is the amount of money a marketing agency or publisher receives in return for placing an advertisement. It is predominantly found in online advertisements, such as with banner ads or content links. This is because digital ad spaces are the easiest to track and measure the return and value of the ad (i.e. how many purchases were made after clicking on the ad or how many people visited a site directly from the advertisement). However, traditional advertising, such as radio or print, also utilize CPL in pricing out their advertising space.

Measuring the CPL is done several ways. Forbes suggests doing it via a simple calculation. Take the total price of your campaign and then divide it by the amount of conversions you receive. For example, if you spent $200 on a Facebook advertisement over a week long period and received five clicks, the CPL is $40.

But the actual price is only a small factor on the worth of a lead. Understanding the urgency of the lead and its source is equally important. For example, leads may come in the form of call ins to a business. To understand the source, prompt employees to ask the simple question, “How did you hear about us?” Provide a way to record and track these personal conversions that will not necessarily show in analytics.  

With digital advertising via forms or contact requests, the providing advertiser should also allow you a way to measure the URL source and guarantee you open or quick access to the customer information and requests. The longer it takes to receive filled out forms or service requests, the more likely the lead will grow cold as the customer loses interest or becomes frustrated with the return time.

The Importance of Tracking ROI

The most telling part of your advertising strategy is the results. How much of an improvement in business activity did your sales team see? How did your revenue change? Your return on investment should be the guiding numbers that are compared to your original advertising goal and the strategy used.

For example, by advertising with a “request more information” form, contact information of a potential new customer is the conversion sought rather than an immediate purchase. In addition, behind every ad is the idea that, while a campaign may not lead to immediate business or revenue, it will lead to invaluable exposure. That outreach to new audiences is not necessarily priceless when there is nothing concrete to track.

Position your sales team as the leaders of tracking ROI on cost per leads. For example, incentivize capitalizing on leads with contests based on closing percentages or revenue. Compare their performance against how many leads they began with. In the end, your ROI may be getting a chance to measure the performance of your sales team and their closing skills.

Comparing Value for Your Business

For new or small businesses just taking the leap, the CPL will vary greatly. In many cases, the CPL in the beginning of a campaign may be much higher. The reason is twofold. For one, the audience, with its overexposure to spam advertising, may be reluctant to trust a new advertisement or even a product or brand. Secondly, there may be some trial and error on what works and what does not in terms of generating leads.

The experimentation across advertising platforms makes it essential to track leads based on the source. Once a “standard” ROI on a CPL is established, you can use the numbers to compare when trying new marketing strategies. For example, if a business finds television ads to be the best source of advertising, they may designate a set amount of $5,000 per campaign with a CPL of $150/client. The sales team has a closing rate of 50% of leads. Therefore, that business would need 67 leads to break even.     

Using Cost per Lead to Strategize

Before signing on the dotted line of any advertising contract, make sure you understand cost per lead. Knowing how to track and measure CPL will allow you to compare advertising options that will work best for your business, saving you money and ensuring your marketing strategy translates to real results.



Topics: Marketing Strategy

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