Cost Per Lead Analysis: Good Indicator for Effective Marketing Campaign
Lead generation and customer acquisition are two sides of the digital marketing campaign. Simply put, lead generation is the contact information of someone who might be interested in a product or service. In contrast, customer acquisition is the conversion part where the interested person commits and purchases.
A digital marketing campaign must measure its performance, such as how many leads were generated, how many got converted to customers, and what was the total expense involved in the advertising campaign. The total amount spent on this entire process is known as Cost Per Lead (CPL).
Why Should one Calculate CPL?
CPL is considered as a part of customer acquisition cost. A business needs to understand what amount was spent to acquire the customer. The net profit made from the customer who made the purchase defines the lead generation channel effectiveness. It is seen that the more expensive a service or product is, the customer takes longer the time to make up its mind. This results in a higher CPL and customer acquisition cost.
Identifying Effective Lead Generation Channels
Social media channels have different reach and target audiences. Some platforms are more expensive for advertising campaigns compared to others. The customer’s purchasing power also varies. So, for example, if one spends $1000 on social media advertisements and $2000 on ads on other platforms. The leads generated from both campaigns were 10 customers each. The cost of lead from social media platforms came to $100 whereas, from other channels, the cost per lead came to $200.
What is the Right Formula for Calculating the Cost of Lead?
Many businesses have wrong notions when it comes to calculating the cost of lead. They think it is just the advertising cost. But in reality, it consists of three components; Advertising costs, inbound marketing costs, and other marketing expenses. By not considering all the additional costs that a business may incur, the cost per lead is understated and gives a misleading picture when calculating the profit generated from a particular digital marketing campaign.
There are plenty of cost-per-lead calculators available online. This spreadsheet calculator takes different scenarios and versions that can have an impact on the business.
Cost per Lead Formula
A marketer or a business owner can optimize their marketing efforts based on lead generation and conversion performance. The easiest way to calculate cost per lead is using this simple formula:
Cost per lead = Total cost of Campaign / Total number of leads generated.
By knowing the total number of conversions, a business will know whether the lead penetration was effective or not. Generating many leads without actual conversions does not help a business, especially those operating on a limited budget. This result will also help a business to understand how viable a particular marketing channel is and whether it is worth continuing or take corrective actions.
It would be erroneous to limit the analysis of lead generation to advertising costs only. One also needs to look at the SEO agency performance as they have a service charge that adds up to the Cost per lead.