Cost per lead (CPL) is an advertising pricing model according to which an advertiser pays a platform a pre-defined price after each lead generated during a marketing campaign. This is also a marketing metric that allows companies to find out the cost-effectiveness of their campaigns.

In this article, we'll explain why cost per lead is important, the way it works, share a formula to calculate it, and offer some tips to reduce your cost per lead.

Why is it important to know your cost per lead?

Businesses rely on this online advertising pricing model to find out whether this or that campaign is profitable. This metric shows how much money it takes to bring in new leads.

Cost per lead model works the following way: you ask a third-party platform to place your advertising on their site when users click on it, they're redirected to your site where they need to perform a particular action, for example, sign up for a newsletter, register for a webinar, or buy a discounted item. After they opt in, they become your leads and the publisher gets a commission.

With this metric, you can learn whether you allocate your advertising budget wisely. Hence, you'll be able to discover the channels that bring you the most leads and reduce investments on less profitable channels.

Now that you know why cost per lead is important, let's find out how to calculate it to discover the cost-effectiveness of any marketing campaign.

How to calculate cost per lead?

It's pretty easy. You need to know the number of leads generated (both marketing and sales qualified leads) and the amount of money you've spent on this particular campaign.

Cost per lead = Total marketing spend/The number of leads generated

For example, you've spent $600 on an AdWords campaign. It brought you 45 leads, so your cost per lead is $13 (600/45). Compare this price to the price of your average product to discover whether it's expensive or okay for your business.

So, it's vitally important to know where your leads come from. Don't play a guessing game, otherwise, you may waste your budget. Discover the most profitable channels and concentrate your resources on them.

If the cost per lead seems too high, follow the tips to reduce it.

4 Ways to Reduce Cost per Lead

Follow the tips below to reduce your cost per lead and invest money in your business development.

  1. Run retargeting campaigns. Probably you’ve noticed that a big part of users who view your products or even add to their shopping cart leave your website without buying. A complicated checkout, total sum, or their own business can stop them from converting into a client. So, instead of acquiring new leads, you can drive these users back by providing the last push — a retargeting campaign. When they visit different sites, they can see your relevant ads encouraging them to make an order. This way, you’ll spend less money on converting warm leads.
  2. Narrow down your demographics. To sell your products effectively, you should know who you sell them to. Go to the reports to find out which demographics engage the best with your advertising. Check the gender and age of these people, analyze why other users don’t interact with your campaigns. Hence, you’ll be able to identify people who are not interested in your products and stop wasting your budget on them.
  3. Reduce the number of fields. Look attentively at your opt-in form as if you were a user. Answer all the questions to find out how much time it takes. Make sure you only ask for important information. Filling in long forms makes site visitors tired and can even irritate them. So, limit the number of fields. After all, you can ask them for more data later.
  4. Optimize your page loading speed. Recall the last time you followed the link from an ad. How much time did you give it to load? Would you wait for 5 or even 10 seconds? The more people have to wait, the more potential deals companies lose. So, it’s vitally important to regularly check your page loading time and work on its improvement.


Congrats, now you know how to calculate your cost per lead and have some tips to reduce it.

References

  1. This article provides cost per lead industry benchmarks.
  2. This article shares 15 ways to lower your cost per lead on Facebook.
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