Not sure how to calculate your cost-per-lead? As an entrepreneur, you’re always looking for ways to improve your business. One key metric to track is your cost-per-lead (CPL). This tells you how much money you’re spending to get a new customer. In order to calculate this number, you need to know three things: your cost per click (CPC), your conversion rate, and your average lifetime value (LTV) of a customer. A lot of this can be used for digital marketing, like ad spending on Facebook or Google Ads, but it’s just as important even for businesses that have other kinds of marketing costs. It’s not just for lead gen or digital marketing agencies. Let’s take a look at how to do this.
How can it help to know your cost per lead?
The cost per lead is how much money you spend to get one person interested in what you are selling. It can help you by telling you how much money you need to make a profit. You can use it to measure how well your advertising is working and see if it needs to be changed. When managing your marketing budget, knowing these values and seeing the trends can also help you determine where to allocate resources for the best return on investment and you can make informed decisions about where you want to spend your marketing funds for maximum turnaround.
How to calculate the cost per lead?
Calculating cost per lead is fairly simple. First, add up all of your expenses related to generating leads, including advertising, events, and sales team salaries. Then, divide that number by the total number of leads generated during that time period. This will give you your cost per lead.
It’s important to track this metric, as it can give insight into the effectiveness of your lead generation tactics and help you allocate your budget efficiently. A high cost per lead may signal that a certain tactic is not yielding enough leads and may need to be reevaluated.
This cost-per-lead metric can also be useful in determining the ROI of a particular campaign or initiative. For example, if you spend $10,000 on a marketing campaign and generate 100 leads, your cost per lead would be $100. If that campaign ultimately results in 20 sales, each with an average profit of $1000, then your cost per lead for that campaign becomes much more manageable.
But not every lead gets closed
Knowing the cost per lead is important, but it’s not the only thing you need to know. You also need to know how likely it is that a deal will be closed once you have a lead. This is called the cost-per-close or CPC. Knowing both of these numbers will help you make better decisions about your business.
To calculate the cost per lead, start by adding up all the expenses related to your lead generation efforts. This includes things like advertising costs, event fees, and employee salaries. Then, divide that number by the total number of leads generated during that time period, as explained above. To calculate cost-per-close, take the same expenses used for cost per lead and divide it by the number of closed deals during that time period.
By looking at cost per lead and cost-per-close (cost-per-customer) together, you can assess the effectiveness of your efforts and make adjustments where necessary. Don’t forget about these important KPIs in your planning and budgeting process.
What else would be good to know?
There are a few other things to bear in mind when calculating cost per lead. The first is that you need to make sure you’re comparing apples with apples, i.e. that you’re using the same measurement criteria for each calculation.
Also, it’s important to remember that cost per lead isn’t the only KPI that matters. You should also track cost per acquisition (CPA) and cost per customer (CPC), as these will give you a more complete picture of your marketing efforts.
Finally, it’s worth noting that the cost per lead can vary significantly depending on the industry sector and what type of product or service you offer. So, it’s important to do your research and calculate an accurate figure for your own business.
Summary
Knowing the cost per lead is important for entrepreneurs, as it can help them determine whether or not a lead-generation tactic is effective. By dividing the cost of generating leads by the number of leads generated, entrepreneurs can calculate the cost per lead. This metric can also be used to determine the ROI of a particular campaign or initiative.
However, cost per lead doesn’t tell the whole story; entrepreneurs should also track cost-per-close (cost-per-customer) to get a complete picture of their marketing efforts. And it’s important to make sure you’re using the same measurement criteria for each cost-per-lead calculation and to do research on industry standards.
YouTube: How to Calculate Cost Per Lead (MQL and SQL) Easily – By Larry Kotch
Photo credit: The photos in this article (1, 2, 3) have been done by Vitalik Radko.
