Lead generation is a critical marketing metric for your sales and marketing teams. To acquire new leads, you need to conduct various marketing efforts, such as display advertising and webinars. Tracking not only the number of quality leads but also the cost of acquiring potential customers is essential. This is where the cost per lead (CPL) comes in.
CPL is the average cost for each new lead generated in your ad campaign. It is a lead metric that measures the cost-effectiveness of your marketing campaigns, ensuring that generating leads is worth the ad spend. Similar to CPM and CPC, it is also an online advertising pricing model where the advertiser pays for a sign-up from a potential customer instead of a view or click.
It is crucial not to confuse CPL with other similar acronyms in digital marketing such as Cost Per Acquisition (CPA), Cost Per Click (CPC), Cost Per Thousand (CPM), and Customer Relationship Management (CRM).
Calculating the CPL is relatively simple. You divide the total ad spend for a given period by the number of leads generated for the same period. The formula for calculating CPL is as follows:
Total ad spend / number of leads = cost per lead
While a good cost per lead varies across different industries, it should be equal to or less than your gross profit per sale. For instance, if a sale gives you a total amount of $100 after deducting total costs and expenses, your cost per lead should be $100 or lower. On the other hand, a bad cost per lead is when each lead costs more than your average gross profit per sale.
To improve your lead generation and lower your cost per lead, consider the following best practices: