Lead Generation: Determining a Good Cost Per Lead

Some of the most frequent questions clients ask us when it comes to digital marketing and performance media are “What is my cost per lead?”, “How do I figure it out?” and “What is a good cost per lead?” The truth is there’s no one-size-fits-all solution to these questions. However, our digital team at Curious Plot has crafted a process to guide you toward finding the right cost per lead (CPL) for your business.

What is a Lead?

Before you begin, you’ll need to determine what you consider a “lead.” Some businesses classify every phone call, email message or any type of new contact a lead. Others require contacts to be vetted further, possibly to the point of requesting an appointment or estimate. Any of these options is fine. The key is keeping your definition of a lead consistent, so you can accurately analyze results.

What is Cost Per Lead?

CPL helps measure the effectiveness of your marketing and determine the right budget for advertising efforts. It’s often used to measure online campaigns, but can track some traditional mediums with the right tactics. For example, if you place a print ad and drive readers to learn more at a vanity URL, you can track action based on the ad.

How Do I Find My Cost Per Lead?

There are three basic steps that go into determining CPL. First, total your marketing spend during a specific time period. This includes all your time, ad spend and third-party expenses, e.g., branded stationery, clothing, etc. Next, total new leads during that same time. Finally, divide the total marketing spend by the number of new leads to determine CPL.

If you’re thinking this is easier said than done, let’s take a look at an example.

You own a patio installation business. During the past month, you’ve completed eight jobs for total sales of $180,000. Now 60 leads have contacted you for service estimates. During that same month, your company spent $2,500 on advertising and marketing efforts.

Here’s the equation:

Total Marketing Spend / Total New Leads = Cost Per Lead
$2,500 in marketing spend / 60 leads = $41.67 CPL
ROI (gross): Total attributed sales revenue / marketing spend = $72 in revenue per every dollar spent in marketing and advertising costs.

You can use a variation of this equation to determine how to adjust your marketing spend based on project sales and lead generation.

What is a Good Cost Per Lead?

If you’re wondering whether your CPL is good or bad, it depends on your industry and the stage each of your leads is in. If quality is what you’re aiming for, a high-quality lead might result in an increased CPL, lower customer acquisition cost and higher ROI. If you’re aiming for quantity your CPL and ROI will likely be lower and leads may not be as qualified.

If this is your inaugural digital marketing campaign or you’re launching a new service, first establish analytics and a dashboard to track activity for about 60-90 days to set performance benchmarks. Once you have good data, adjust your spend, messaging or tactics based on KPIs to determine a CPL that aligns with your marketing objectives.