Cost Per Lead

What digital advertisers need to know about this important metric.

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Cost Per Lead

Cost per lead is an important acquisition metric. First, according to MarketingTerms.com, the cost per lead definition is: the cost per lead is the amount of marketing dollars spent per lead gathered. So, if you were generating a lead-based campaign, you’d ask: What is cost per lead compared to cost per acquisition? What is cost per lead compared to cost per commitment? Every lead isn’t a commitment; it’s just a potential commitment.

Why would you need to know? If you have a lead-based campaign, you know that you’re generating 20,000 leads per month. But how much does that cost?

Let’s say we know that our cost per lead is $1. And that out of 100 leads, one person commits. That means our cost per commitment is 100x$1: $100. At that stage, we’d better hope that each commitment comes with a customer lifetime value of more than $100.

If it doesn’t, we know we need to reduce our cost per lead (perhaps $0.10 would be more reasonable) or we need to increase our commitment rates. It may be that one factor is inflexible. Maybe our leads will always cost $1, so we need to increase commitments. Maybe we’ve tried everything, but we have a product that’s difficult to get a commitment on. That means we need more leads at a lower price.

Metrics always play off each other in this fashion, so there isn’t always an objective answer. Rather, there’s a combination of factors in an algorithm that may need to be adjusted to ensure that the costs are correct.

Another example: comparisons. You may find that your Facebook leads cost $1 per lead, your Google costs $2 per lead, and your Twitter costs $3 per lead. If you’re trying to fine-tune your budget, you may pull back on Twitter and focus on Facebook — or just try to optimize Twitter to get the same results as your other platforms.

Cost Per Lead Formula

There are a lot of metrics that could be used as advertising KPIs. How to calculate cost per lead is one of them.

The cost per lead formula is pretty simple. It’s the cost of your advertising strategies divided by the leads gathered. That’s not the problem. The problem is having accurate numbers.

Cost Per Lead Formula

Let’s say you have a marketing budget of $20,000. Some of this goes to Twitter, some of it goes to Facebook, some of it goes to LinkedIn. Where are your leads coming from? It may not be as simple as their last touchpoint. Some might start on Twitter and end on your Facebook. Some may see you on a Facebook ad first and later type in your website URL.

Because people are now interacting across multiple channels, it isn’t as clear where leads are coming from, or what an investment in one platform means. So, the calculations that go into cost per lead on a platform basis becomes problematic, and often marketers need to look at their campaigns holistically.

Without comprehensive, consolidated campaign data, it becomes nearly impossible to track a single buyer across multiple channels and to identify the channels that are most likely to deliver leads. If Facebook ads, for instance, are encouraging users to go to your website, then pulling back on your Facebook ads could significantly reduce website leads. But if you’re not properly tracking Facebook to website conversion, you’ll never know this until you pull back on your budget.

So, the cost per lead formula is important. But because of the way that different platforms retain their data and their metrics, it can also be misleading without the right technology.

Average Cost Per Lead

The average cost per lead will vary significantly depending on the organization’s size and industry. The cost per lead for McDonald’s isn’t going to be anywhere approaching the cost per lead for Terminix Pest Control. The needs are different, the audience is different, and the way that leads are generated is different.

When you want to compare your cost per lead, you should look at your competition. You should look at companies most similar to you. And you should consider your past performance. If your business is profitable and your cost per lead is going down, then you’re doing a good job. If your cost per lead is going up dramatically, on the other hand, your business could be in trouble; you could need to manage your lead generation better.

The average cost per lead, in general, is $158. And that’s very expensive if you have a SaaS company that charges $5 a month per seat. But that’s not expensive at all if you have a real estate company dealing with luxury homes at $1,500,000 a pop. It all depends on context.

So, what is a good cost per lead? Ultimately, a good cost per lead is a cost that is profitable and comfortable for your organization. If you’re spending more per lead than you’re getting back, that’s bad — unless you’re a startup that’s growing very aggressively, in which case, it’s almost industry standard. But if you’re spending very little per lead and getting a lot back, it may even be time to scale up your campaign and start growing.

Cost Per Lead In Digital Marketing

What should you know about your cost per lead in digital marketing?

Digital marketing CPLs tend to be in a fairly wide range, depending on your audience. Tighten your audience to an audience that’s more interested in your product, and you may be able to get more leads for less money. But at the same time, you aren’t going to be expanding your reach and you may end up saturating your market quite quickly. CPLs for digital marketing are lower than traditional media (television commercials, radio), but campaigns can still run rampant if they aren’t under direct control.

As with other CPL stats, it’s most important to know that you’re either staying static or improving. Your cost per lead going up is a major metric and a major indicator that your marketing campaign is either saturating the market or that you need to adjust it.

Split testing can help fine-tune cost per lead by running multiple campaigns at once and seeing which performs the best. One of the major advantages of digital marketing is the ease at which it can pivot.

Cost Per Lead Facebook

Facebook is now known as one of the most affordable and effective places for lead generation. Your cost per lead Facebook should generally be quite positive. This is because of the way that Facebook makes it possible to target individuals on a granular level. There’s still no good answer to “What is a good cost per lead on Facebook?” because it does vary by audience. But there has been a lot written on how to lower cost per lead Facebook.

Once you get to know FB ads reporting, you can see which ads are performing better and which ads are worse. Facebook’s benefit is that you can really narrow it down to demographics. You can select customers that are very similar to the customers who have committed before. And that means you can increasingly run well-tailored, well-targeted ads.

Most of the time, the CPL for Facebook will be lower than Google Ads and other platforms. More importantly, privacy initiatives are going to make it harder for third-party services like Google and Bing to run advertisements toward targeted individuals. Because of this, Facebook and other social media platforms are going to become even more important parts of the advertiser’s toolkit. Consider your cost per lead Facebook one of your most important metrics.

If you cannot get a decent CPL on Facebook, it’s very likely that you have somehow misidentified your target audience and need to go back to the drawing board in terms of your targeted demographics.

Cost Per Lead Google Ads

Google Ads, like Facebook, has a cost per lead that depends on how well-targeted your ads are. So, let’s focus on the specifics of what can affect your cost per lead Google Ads.

If your ads aren’t well-targeted, the CPL will be higher. But also, if you’re targeting very competitive keywords, your CPL may be higher. For instance, if you’re targeting “plumber” and you’re advertising a “plumber in California,” then you will be spending a lot per lead, but you might not be getting a lot of commitments. It would be better to narrow your audience to the less competitive “plumber in California,” thereby reducing your lead cost and improving effectiveness.

Your CPL for Google Ads is biddable. You will usually say how much you want to spend in your budget and then Google will bid on ads to keep you on target. So, your CPL can be controlled on a granular level by choosing what Google will bid on and how much you will spend. But you still need to be able to get commitments. If you’re spending a lot of money on Google Ads and not getting any leads, it’s more or less likely that your ads may not be promising what you can deliver. If people click an ad and don’t see what they expect, they’ll just leave the site.

Google Ads provides really robust analytics. But Google Ads analytics don’t work on their own, either. You should also take a look at what users are doing on your website after they click your ads. A popular thing to look at is shopping cart abandonment. If someone goes all the way through and abandons a shopping cart, it’s usually because they were either surprised by final costs (like shipping costs) or because they did some research and found an identical product elsewhere cheaper.

Cost Per Lead Example

So, let’s take a look at a cost per lead example. You know that you’ve spent $5,000 on your website content this month. You received 50,000 leads from your website. So, your cost per lead from your website is $0.10. You’re doing well so far. Now, out of each 50 leads, 1 lead converts. That’s 1,000 conversions, total. Your cost per conversion is $5. Each conversion makes you $50.

Those are all really good numbers. If you do all the math, you’ve spent $5,000 to bring in $50,000. Of course, most people aren’t going to have numbers that are this good. When your numbers become closer together (when your cost per conversion is a significant chunk of profit), it becomes even more important to be accurate about your numbers.

Let’s continue the cost per lead example, though. The next month, you decide to spend $10,000 on your website content. You expect 100,000 leads at a CPL of $0.10. But you find that you actually receive only 25,000 leads, which bumps up your CPL to a much higher $2.5. What happened?

It’s likely that your initial campaign saturated your market. You will need to adjust your demographics targeted or you will need to change up your advertising. In any case, you know that you shouldn’t continue to increase your advertising campaign budget because you’re getting less for your money.