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 are armed with a wide range of marketing metrics they use each month to calculate their impact. Some metrics are worth a lot more than others.
Of course, it depends on your business type, if you’re B2B or B2C and how you work with your sales team to close sales. But measuring your marketing doesn’t need to be so complicated.
Read on to find out how to calculate your cost per lead but also learn how to go beyond lead generation and report back on the one metric that matters: revenue.
What is Cost per Lead?
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.
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.
Calculating Cost per Lead
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).
Remember, your marketing spend needs to include:
- Any ad spend
- Any third party expenses such as tools you use to create or distribute content
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.
Example of Calculating Cost per Lead
To help visualise calculating cost per lead, we worked up this quick and easy example.
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.
If your product or service only sells for £45, then your cost per lead is too high and you’re likely not making any profit.
But that’s not all.
While you’ve driven 20 new leads, they’re not confirmed sales.
The Issue with Cost per Lead
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?
Let us explain the three main issues with using cost per lead as your main marketing metric.
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. We’re talking about leads here, so we know there’s no eCommerce to save the day.
Leads could convert via phone call, via a form submission or via a live chat.
Are you tracking all of those avenues?
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
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 an ad campaign worth £1,000.
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 View of Full Customer Journey
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?
Go Beyond Cost per Lead and Track Revenue
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 Users with Marketing Attribution
Remember how we said you needed to track every conversion type: forms, calls and live chat?
Well, you can go one step further.
With marketing attribution, you can track all of these touchpoints. Plus, you can scrape revenue from your leads when they close and fire it to your marketing analytics.
With Ruler Analytics.
Here’s how it works.
A user sees your PPC campaign. They click on it but they don’t convert just yet.
Ruler’s code fires at a new visitor on your website and tracks their marketing data. Ruler will continue to track their subsequent visits, including which pages they engage with.
After a few sessions, the user converts into a lead by calling your company.
At that point, Ruler fires all the data held on that new lead over to your CRM.
Ruler continues to track that lead, up until they close into a sale.
Then, Ruler will scrape the revenue data associated with that lead and fire it to your marketing analytics tools.
It means you can see the actual revenue obtained from your leads attributed to the marketing channels, campaigns and keywords that influenced them.
So, when you come to report back on your PPC campaign, you can say this.
“Our PPC campaign generated 300 leads via phone call and form submission. £35,000 of revenue was generated from this campaign through closed sales. With an ad spend of just £2,500 this gives us a return on investment of 1300%.”
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.
Not sure how to track offline conversions like phone calls? We wrote a simple guide to help you through the process.