Marketers know that digital marketing has a language all its own, including a seemingly endless list of acronyms. Cost per lead (CPL) is an important KPI that will help you assess the effectiveness of your B2B marketing strategy.
Whether you buy leads, collect contacts at physical or virtual events, or generate leads with inbound marketing, identifying your cost per lead will help you keep a close eye on your marketing budget.
Why is that important? Because keeping your CPL low creates a greater profit margin for your business. At Plezi, we’ve studied the cost per lead at length. In this post, we’ll show you how you can calculate your CPL, track it, and best of all, give you some tips to help you reduce it!
What CPL is and how to calculate it
Cost per lead, or CPL, is an important KPI that measures the cost-effectiveness of marketing campaigns that generate new leads. The CPL provides businesses with critical data to determine whether they are acquiring new customers in a cost-effective way. Ultimately, the continuous monitoring of both the cost per lead and conversion rates lets companies make better business decisions.
This KPI is of particular interest to B2B marketers because few B2B buyers are ready to purchase straight away.
First, let’s have some definitions, so we’re clear what each acronym and KPI that we are discussing indicates:
- CPC refers to the cost per click. This is how much you pay when someone clicks on one of your paid ads online.
- CPM stands for cost per thousand, also known as cost per mille. This is the price of 1000 impressions of an ad on a web page. An “impression” means that it was displayed on a web page.
- CPA is cost per action. Whether the action is acquiring a new lead or a sale, the CPA measures how much it costs advertisers to carry out this defined action.
How to calculate CPL
Cost per lead is calculated by dividing your marketing expenses by the total number of new leads acquired.
- Step 1: Calculate your total marketing expenses.
- Step 2: Calculate the number of new leads.
- Step 3: Divide your marketing expenses by the number of new leads.
What is a good CPL?
A good CPL according to studies
That is the million-pound question!
To help you out, some digital marketing data companies provide estimates of the average CPL by sector so you can compare these with yours.
- GoConvert defines what they consider to be a good, a medium, and a bad CPL by sector. As a rule, they consider that a good CPL for B2B companies would be below $75.
- Wordstream estimates the average CPL for B2B at $116.13 for Google Ads in 2021.
- VisitorQueue estimates CPL at $58 for B2B social media marketing, $75 for LinkedIn advertising, or $53 for email marketing.
A good CPL according to your revenue per lead
While these figures can be of some help, they also need to be adapted for your particular situation.
That’s because to calculate what a good CPL is, you first need to know what a good revenue per lead (RPL) is. Let’s say that for every lead generated, you earn 50 pounds. It’s up to you to decide how much you’re willing to invest in generating leads, how much you can afford to purchase them for, or spend on inbound marketing and/or events.
This is especially important in B2B, because your leads need to be managed over the long term. The calculation looks like this:
- On a particular channel, you generated X number of leads;
- From these X leads, you booked Y numbers of appointments;
- From Y appointments, you made so much revenue.
In the end, a good CPL really depends on what profit margin you’re aiming for.
How to calculate CPL by channel
When you look closer, you’ll realize that a lead’s value will vary according to the channel on which it was generated.
That’s because your conversion rates won’t be the same for all the channels you use. If you use search engine advertising (SEA), there’s a good chance that a lead is already interested in your brand or your product. They’ve found you by entering a search engine query on a related topic.
And the more interested leads are, the higher the conversion rate will be compared to leads that have been targeted from cold with a Facebook ad. The closer leads are to making a purchase, the more valuable they are because their sales cycle requires less expenditure and investment from you.
On some channels therefore, you can afford to have a higher CPL, while on others it will be possible to reduce your CPL. So, what is a good CPL for channel A won’t necessarily be a good CPL for channel B.
Everything depends on your strategy:
- You can target leads which are closer to purchase, which will therefore be more expensive, and shorten their sales cycle as a result;
- You can generate lower quality leads that have a lower conversion rate, but which cost you much less. In this case, you’ll need to convert them using lead nurturing – a strategy we know something about at Plezi! 😉
What’s more, the cost per lead using inbound marketing is on average 3 times lower than that of outbound marketing. Marketing actions like cold prospecting, buying large quantities of leads, corporate events, and telemarketing are among the most expensive you can take. They often result in a cost per lead that is too high.
If you want to know whether your marketing investments are paying off, you need to compare your CPL with the profit you make on sales. In short, the ideal CPL will be different for everyone, so average figures might not apply to your business.
Why you should track CPL
CPL is one of the most important metrics you can measure because all businesses need to decide how much they are willing to pay to generate a lead. Knowing your CPL is essential for calculating your marketing costs and making informed decisions.
For example, you know that you need 10 leads in order to make 1 sale, and that each lead costs you 20 pounds. This will tell you that you have to spend around 200 pounds for each sale you make.
Calculating your CPL for each channel is the best way to identify both the most profitable, and the least profitable channels for generating leads.
How to accurately track your CPL
If you have been running a marketing campaign for a few months, you’ve probably collected enough data to analyse its performance. Here are some ways to accurately track CPL over time:
- To analyse website traffic, UTM links track the source of visitors who have clicked on links used in your campaigns.
- Create conversion goals in Google Analytics to track leads by source and medium.
- Use a marketing automation tool like Plezi to track how many leads come from each channel and/or campaign. Setting goals can help you segment leads from advertising, email marketing, and social media.
(A view of visits on Plezi’s dashboard by medium)
How to reduce CPL
You might have found that some of your ad campaigns don’t generate as many leads as you’d like. This results in a CPL that is too high. How can you improve the cost-effectiveness of your advertising spend?
Narrow your target audience
If your target audience is very large, you may not be getting results because your ad campaign isn’t reaching the right people. To improve this, you need to narrow down your target audience.
Let’s imagine you are an HR software publisher. In this case, you want to focus on one group (for example business decision makers) and create several subgroups that share similar characteristics (e.g., HR decision maker, talent acquisition decision maker, CEO, legal decision maker). You can base this on data you’ve obtained from them which is stored in your CRM.
This will then let you create ads and campaigns that specifically target these subgroups. That way, you won’t be spending money trying to reach leads who aren’t interested in your product.
Segmenting your target audience in this way has huge benefits for any campaign. It helps you deliver the right message to the right people at the right time. That will make your campaign more effective because your target audience will be more engaged by the content of your ads.
Create personalized campaigns
Better targeted marketing campaigns are more successful and more cost-effective.
Internet users are only likely to click on advertising that is closely related to their search queries (on Google) or to their professional profile (on social networks). If you want to boost your conversion rate, you need to provide them with content that matches the interests of your target audience.
This is where segmenting your target audience is of real benefit. Because not all members of your target audience want the same thing from your company. When you segment your target audience, you can create content that is relevant for each audience segment.
And more relevant content results in increased engagement. Your audience is more likely to engage with content if it addresses their specific needs.
At Plezi, for example, we noticed that not all internet users enter the same search queries. Some search for “marketing automation” while others search for “marketing software”. We want to be able to answer both queries, so we created two different marketing campaigns for our platform that use different ads and landing pages to best match the two queries.
Test your ads
If you only run one ad at a time, you can’t compare it with anything else, analyse the results, and learn from them. That’s why it’s a good idea to run at least two different versions of an ad so you perform A/B testing. Just make sure that the different versions will be displayed the same number of times and off you go! This will let you constantly try out different images and texts and ensure that the ad you have running is the one that performs the best.
For example, let’s say you launch a native advertising campaign that uses a combination of three different images and three different texts. This makes 9 possible combinations in all. You calculate that the average CPL is 10 pounds but looking closer, you see that some ads generate leads at a cost of 5 pounds and others at 15 pounds. Using this information, you can see what combinations work best and optimize them further as a result.
However, if you want to find out what engages your target audience the most, it’s a good idea to change only one element at a time. Try changing the image first, for example, and then the text of an ad.
The ad that converts the greatest number of leads and which lowers your CPL as a result is the winner.
At Plezi, we regularly A/B test all our adverts. For example, we first tested the two different images below to promote our guide to landing pages:
After two weeks, we noticed that the first image performed better (and drove cheaper conversions) than the second. You can also test different copy, keywords and ways to bring in your future customers.
Optimize your landing pages and forms
To become a lead, a website visitor is required to fill out an online form. This is found on the landing page they have been sent to by your advert. As a result, this landing page needs to be optimized to be as effective as possible.
The same applies to online forms. Do you want all possible fields to be filled out at once or for this to be a gradual process? Are you only asking for relevant information? Once again, while there are trends in the use of online forms, how well they perform is specific to each business.
Website visitors are often lost in the time between when they arrive on a landing page and before they are converted into a lead. That’s why a good online form is crucial, because losing these potential customers who are so close to being converted is a waste of resources.
Study digital marketing trends
Digital marketing is constantly changing. That’s why it’s important to stay up to date with what’s happening in the digital world. Technology is vital to today’s marketing efforts, and that’s good news, because it’s constantly making available new features, new tools, and creating new opportunities.
If you work in a competitive environment, you need to be innovative. Try out new channels. New marketing platforms are constantly appearing, but often people wait to see if they deliver results before investing in them. With less competition, it’s often possible to generate leads very cheaply this way.
Another good idea is to keep in mind the important times of year for your market:
- Before the holiday season, the CPL increases.
- During the first 5-10 days of the first quarter, many companies are still discussing budgets and haven’t yet signed anything. This creates less competition, and a cheaper CPL as a result.
- Do you think you could also generate leads during the weekend? There is less competition then, especially in B2B.
The CPL will be different for each business, so don’t worry too much if yours is considered above average. Keep optimizing your content and adverts and you’re sure to get it to where you want it to be. Try putting into practice some of the ideas in this post and let us know what results you see.
Once your campaign is finished, it’s time to see how effective it was. Were the leads you generated with this campaign qualified? Did you generate the number of leads you were hoping for? Is your CPL in line with your budget and the goals you set? After thinking about all these things, decide whether your campaign can be considered a success or not. If it is, keep up the good work!