At a trade show a few weeks ago, I turned the corner and nearly ran over Steve, the owner of a large exterior remodeling company and someone I have known for quite some time. We hadn’t seen each other in person for a while and it was great to catch up. We got to talking and covered a whole bunch of topics, a couple of which may not be a fit for a family blog like this.
Eventually the conversation turned to the variety of marketing tactics Steve was using. As he began talking about his Cost Per Lead (CPL), though, something seemed a bit off. Sure enough, Steve did faithfully track this number by lead source and for his business overall. However, his method of calculation and his broader understanding of what CPL actually meant were not quite accurate, in my opinion.
Keep in mind that Steve is a brilliant guy and someone for whom I have great respect. But it also made me realize the importance of this topic (hence, this blog). Without good data, you can’t make informed business decisions around growth, forecasts or where and how to spend your promotional dollars.
So, let’s talk about this important metric and how it works.
A Simple Formula
The calculation of Cost Per Lead (CPL) couldn’t be more straightforward: CPL = Total Marketing Spend / Total New Leads
For example, if your Total Marketing Spend is $10,000, and you generate 50 new leads as a result, your CPL is $200.00 ($10,000/50). Simple.
The confusion comes when determining what goes into that Total Marketing Spend number in the first place. Most companies consistently underestimate this amount – and, as a result, their total CPL – because they fail to consider all the costs involved.
For example, if you’re running a direct mail campaign, I’m sure you’ll consider the costs of printing and postage. But what about the design costs of the mail piece itself? Or the time you and your staff will spend editing the copy? Those are real costs and should be included in CPL.
Or maybe you have a booth at a trade show. There’s the cost of the booth rental, materials and staff, of course. But have you considered the costs associated with follow-up calls, emails sent, travel expenses? Those count too. So does that beer you had after the trade show.
So, step one in calculating an accurate CPL is making sure you’ve accounted for and allocated all the relevant costs of your marketing.
But we’re not done yet…
Not All Leads Are Created Equal
As we’ve written here before, not all leads are of equal value.
Yes, CPL tells you the relative cost per lead, allowing you to compare marketing costs between channels and relative to industry (or your own) benchmarks. But it doesn’t distinguish among leads based on quality. And that matters a ton.
Think about it. If you give a quality lead to a decent sales person, demos get done, deals get made and close rate goes up. On the flip side, if you give a lousy lead to a decent sales person the opposite happens.
It would be a mistake to assume that all channels provide leads of equal quality. And while it may be tempting to choose the least expensive channel as the place to spend your marketing dollars, you may (or may not) be surprised to find that the lowest CPL channels are not necessarily the most profitable contributors overall.
Know Your Numbers
Accurate CPL calculations are the starting point for any metric-savvy business. (In future blogs, we will dive into other key metrics and ultimately tie them together.) Take a hard look at CPL to make sure you are calculating it correctly and tracking the ultimate success of each lead source.
As the adage goes “what is measured can be managed.” Proper measurement and management are hallmarks of winning companies.
