Cost Per Lead Calculator: Easiest Formula To Calculate CPL
Marketing strategies no matter how creative and advanced they are, have to generate leads in a cost-effective way in order to be considered successful. What this means is that you may have a strategy that works for you and is generating enough leads for you, but if it involves ultra-high costs with expensive resources, then you likely won’t be able to enjoy the benefits in the long term (unless its a growth strategy).
The key is to find that fine balance where you consistently generate leads while being profitable. To mathematically stay on the positive side, businesses calculate the Cost Per Lead.
What is CPL?
Cost Per Lead (CPL) is the total amount you spend on marketing to generate one lead for your business. It is one of the most important metrics in marketing that helps decide which of your lead generation venues are effective and which of them are not. It helps you see whether you can afford to spend a certain amount on acquiring new leads on a regular basis.
CPL is often confused with CPA, which stands for Cost Per Acquisition. While CPA refers to the total cost of generating one new paying customer, CPL deals with generating new leads, which are essentially people interested in your products and services.
What are the costs usually incurred in generating new leads?
If you are generating leads from adverts, the calculation is more simple as costs are direct. Simply divide the cost by the number of leads acquired. But for organic channels, calculations or not as straightforward. Generally, acquiring a new lead involves inbound marketing costs, such as the amount spent on landing pages, SEO, lead magnets, display advertising, etc.
Now, most CPL calculators or formulas available online consider only advertising costs, which sometimes can be misleading considering the fact that acquiring new leads, as we mentioned earlier, does involve other marketing costs as well. However, CPL can be calculated on a per-channel basis, where you can determine an optimized level of spending for each channel or campaign.
Why is the cost per lead calculation important?
Cost per lead is a metric that directly influences the cost per acquisition or the CPA, which describes the costs involved in acquiring a lead as well as turning them into a paying customer. If your CPL is high, your CPA is also going to be high.
Hence, calculating the cost per lead helps optimize the expenses incurred in acquiring customers.
Secondly, calculating the CPL helps determine the most effective lead generation channels. Different channels like advertising, content marketing, and email marketing generate different types of leads, in varying qualities. For example, the leads acquired from ad campaigns may be found to be higher paying in terms of value as compared to the leads generated from organic keywords with no buying intent. This would make spending on ad campaigns more cost-efficient in that it brings in better quality leads.
This way you can optimize your marketing spends and concentrate on channels that bring more value to your business.
The idea is to lower your CPL while generating the best quality leads, capable of bringing in a considerable level of revenue. You need to be able to sustain your efforts for the long term and yet be able to derive good leads from them.
Especially when it comes to direct marketing, where a specific call to action is involved, calculating the CPL is extremely effective as the action can also be tracked. Hence for channels like advertising with clear calls to action like “Sign Up”, the CPL helps accurately determine the costs involved in generating the lead.
Several marketing campaigns do not have a direct lead acquisition method. Impression ads, blog post marketing, etc. When ads are run to spread brand awareness, the impact is not directly visible. For cases like this, all expenditure related to the vertical needs to be considered for analysis.
Another indirect marketing channel is SEO campaigns where the expenses are mostly incurred in getting the content created and acquiring links. In this case, even though the leads are generated free of cost, there are indirect expenses involved in facilitating the same.
Marketing best practices always involve a strategic mix of both direct as well as indirect channels with optimized expenses. It helps build the most rational and economic marketing and sales funnel to bring in the best quality leads.
How to calculate the cost per lead?
The cost per lead can be arrived at by dividing the total marketing costs by the number of leads generated. It is important to consider all expenses including the time spent, the ad development, and running expenses along with any third-party expenses that you may have incurred when calculating the overall cost per lead.
The formula is:
Total marketing costs/Total number of new leads generated = Cost Per Lead
Now if you’d like to calculate the costs involved in generating leads under a particular channel, you can divide the costs incurred in that particular channel, by the total number of leads generated through the same.
Total amount spent on advertising/Total number of leads generated through advertising = CPL in advertising
Based on the insights derived from your marketing efforts, you can arrive at an optimal cost per lead. Depending on your type of business, industry, and specific business model you can decide on a range as well, that will keep bringing you the best outcome for an extended period of time.
The Cost Per Lead is thus clearly one of the best indicators of the effectiveness of your lead generation campaigns as well as overall marketing efforts. With careful analysis of the marketing costs that your company can afford and the lifetime value of leads generated, you can determine a feasible level to sustain your efforts and reap the most benefits in the long run.
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