Cost per Lead: Is Your Marketing Effective?

Laura Caveney
9th August 2021
Analytics

Cost per lead is a marketing metric used to determine how well your campaigns are working to drive new leads. We share how to calculate this key metric and show you how you can get more reliable data to prove your impact.

Marketers can arm themselves with multiple marketing metrics to help them calculate their impact. However, some metrics are more valuable than others.

When you’re generating leads to convert into sales, you need to tackle difficulties with tracking offline conversions and longer customer journeys. But measuring your marketing doesn’t need to be difficult.

We share how to calculate cost per lead, why it’s better than cost per click and how you can go one better with revenue per lead. Because you know the metric that matters most is revenue.

Keep reading to learn:

 

 

What is cost per lead?

If you’re generating leads for your business, then cost per lead is a vital metric you need to work out how to track.

Related: Complete guide to lead tracking and lead generation.

 

Cost per lead: Definition

Cost per lead is a key marketing metric that allows you to measure the effectiveness of your marketing in relation to generating new leads for your sales team.

Put simply, cost per lead is the investment required to acquire a new lead for your business.

A lead is a person who has visited your website and expressed interest in your product or service. This expressed interest could be downloading gated content, booking a demo or another key conversion goal.

Cost per lead is closely linked to other key marketing metrics such as cost per acquisition.

By quantifying your cost per lead, you can attach a tangible monetary value to your leads so your marketing team can better understand how much budget is needed to acquire new leads.

Cost per lead can be used across all of your marketing content and strategy. It can also be broken down by channel and campaign so you have a better understanding of how individual aspects of your marketing work to drive new leads.

 

 

How to calculate cost per lead

Now we know what cost per lead is, how do you calculate it?

When you’re generating leads for your business, you’re likely converting website visitors via phone calls, form submissions or live chat. And these conversion types are tricky to track. In fact, we found that 62% of marketers using phone calls struggle to track them.

 

Cost per lead formula

Ok, so now we know the definition of cost per lead, how do you calculate it?

It’s pretty simple, actually.

Just take your total marketing spend and divide it by the total number of new leads. This will give you your cost per lead (CPL).

cost per lead formula

 

Remember, your marketing spend needs to include:

You can also attach a monetary value to your time too, to get a better understanding of how hard your marketing needs to work to drive new leads.

 

Cost per lead calculator

Do you want a cost per lead calculator to help you calculate your CPL without any maths on your end?

Use our cost per lead calculator to find out how much it costs you to generate a new lead. that new lead. You just have no way of proving it.

 

 

Why cost per lead isn’t enough

Cost per lead is a great metric to use to understand how your marketing is working to drive new leads.

But that’s all they are, leads. They are not guaranteed revenue.

And that’s not all.

Are you 100% sure you’re tracking all of your leads correctly?

Here’s a quick example scenario. Using this, we’ll explain the three main issues with using cost per lead as your main marketing metric.

Your company wants to understand how your PPC campaign has worked to drive new leads.

You calculate that you spent £1,000 on this particular pay-per-click campaign and that 20 users converted into a lead.

So, the cost per lead = £1,000/20 = £50

That means the PPC campaign costs your company £50 for every new lead created.

 

Are you tracking leads?

The first issue and this is a big one, is to ask yourself, are you even tracking your leads properly?

Look at it this way.

There are many ways a user can convert.

Leads could convert via phone call, via a form submission or via a live chat.

Are you tracking all of those avenues?

 

P.S. A recent survey of 200 marketers found that 53% struggle to track live chat, 62% struggle to track calls and 36% struggle to track form submissions. Read the full report into marketing attribution and reporting here.

 

Let’s look at the example formula from before, again.

You spend £1,000 on your PPC campaign.

It generates 20 leads. Or so you think.

In fact, you’re only tracking form submissions. You miss that the campaign actually drove a further 15 leads via inbound call and 5 via live chat.

That’s 40 leads now. Double the number we thought!

If we recalculate our cost per lead, it leaves us with a very different figure.

£1000/40 = £25

how lead tracking impacts cost per lead formula

 

That’s half the cost it was previously. If you’re not tracking every entry a user could take to become a lead, then you’re definitely not getting an accurate cost per lead.

 

 

A lead is not revenue

While we know now that your PPC campaign generated 40 leads, how much revenue did it generate?

Let’s say in this example, only 12 of those leads closed into a sale.

While our cost per lead is still £25, our customer acquisition cost (CAC) is actually over £80. That’s a difference of £60 in just one ad campaign.

 

When big budgets are involved, that leaves a lot of room for error.

But don’t worry, we’ll explain how you can go beyond cost per lead and track your marketing by revenue.

 

 

No full customer journey view

Another issue with cost per lead is that it assumes that conversions are made directly.

How many times have you visited a website for the first time and converted straight away?

Probably somewhere between never and one or two times, right?

Even if you are tracking your leads correctly, how do you know a user didn’t see your PPC campaign and then convert after further research?

That would massively affect your cost per lead calculation because your PPC campaign did influence that new lead. You just have no way of proving it.

But it could mean that your leads jump up from just 40 to 100. That takes your cost per lead metric down to just £10 per lead.

Without being mindful of full customer journeys, how can you ever get a good indication of what’s working and what isn’t?

💡 Pro Tip: Want to better understand your leads and their touchpoints? Download our eBook to learn how to track your customer journeys end to end.

 

Tracking revenue per lead

We now know three very good reasons why cost per lead isn’t trustworthy.

And there’s nothing worse than unreliable data.

For a marketer, there’s no better way to measure your impact than with revenue.

Revenue as a metric is:

And with the right tools, it’s easy to track.

 

Track every inbound lead

Remember how we said you needed to track every conversion type: forms, calls and live chat?

With a marketing attribution tool in place, you can do that. Oh, and it’s automatic. Tools like Ruler Analytics allow you to automatically track every inbound call, form and live chat conversation.

And it goes further than that.

 

Track the full customer journey

Those inbound leads will be tracked by Ruler through their entire customer journey. From their first interaction with your website, Ruler will track them.

At the point of conversion, Ruler will send the data held on that user over to your CRM.

This means you can see exactly what your leads are engaging with at which part of the customer journey.

 

Related: Customer journey stages and how to track them 

 

Track revenue per lead

This is the juicy bit. Forget cost per lead as your main marketing metric. Revenue per lead allows you to see how much actual revenue you can generate for every lead you bring in.

This gives you a perfect insight into what in your marketing arsenal is working.

Ruler Analytics tracks leads through the full customer journey. And since it talks to all your most important apps, it can pull the data you need and send it where you need it most.

For example, let’s say a user converts into a sale and this revenue data is added to your CRM. Ruler can pull that revenue amount and fire it to your analytics tools e.g. Google Analytics or Google Ads. In those tools, it will automatically attribute it to the correct marketing channels, campaigns, ads and keywords.

This gives you definitive proof on what’s driving your bottom line.

 

💡 Pro Tip: Want to better understand how to connect the dots between your marketing apps? Here’s how Ruler attributes your revenue back to your marketing campaigns.

 

 

Wrapping up

Imagine if every marketer could report back on return on investment. Imagine how much more budget and resources you could get your hands on.

While cost per lead is a fantastic way to understand how your marketing is working, it does come with a few caveats. By implementing proper tracking and marketing attribution, you can go above and beyond lead generation and focus on revenue generation.

Still not sure how to best track offline conversions like calls? We wrote a simple guide to help explain it. Download our offline conversion tracking eBook and become an expert in lead tracking.

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