CPL (Cost per Lead) is a marketing metric denoting the amount spent to obtain a lead in a digital marketing campaign or channel. This enables advertisers to understand how effective their campaigns are at generating leads in a given stream. With CPL, conversions are reliant on end-users converting via an “opt in”, offering their contact details to the marketer so as to join the company’s marketing funnel.
What is CPL?
CPL is the dollar amount required to generate a lead, which is classified as a warm or prospective customer, not a confirmed client. A lead occurs when a user makes a conscious decision to opt-in by providing their contact details, usually via a contact form to which an online ad points them.
Cost per Lead analysis gives advertisers an effective point of comparison with other metrics, as it can tell a lot about how well the company’s advertising assets, channels, or devices are working to generate leads. It can also advise marketers about any roadblocks in the customer funnel that is preventing them from becoming fully-fledged leads.
It’s important to note that the Cost per Lead is a measure of leads only, regardless of whether the lead actually converts into a customer.
Why is CPL important?
Before someone becomes a customer – in most cases – they most likely become a lead. The Cost per Lead metric is important for most businesses because it is an excellent indicator of campaign success.
It measures how cost-effective a lead-generation campaign is, laying out how much money a business must expend to bring on board a potential customer. Not only that, it helps business owners to drive qualified, likely-to-convert leads to their platform while reducing unnecessary ad spend on cold or unqualified leads. Understanding this metric is an essential part of cost-benefit analysis, as it provides a clear point of comparison between channels to justify media spend. Thankfully, it is also one of the more straightforward KPIs to understand.
Campaigns can be subdivided by how they are delivered, including by network, device, and location. Using CPL, advertisers can compare these channels to understand where the most leads are coming from and adjust their ad spend to target that channel in an effort to increase leads. CPL can also indicate whether a given lead magnet is high-value enough to drive customers to opt-in with their contact information.
Conversely, advertisers or website owners can use this valuable metric alongside other KPIs to decide which channels are under-performing and curate their campaigns accordingly.
CPL formula: How to measure CPL
The formula for CPL is very simple:
CPL = Money spent on campaign (or channel) / Number of leads generated by that campaign (or channel)
The lower a campaign’s CPL, the better it is performing, because it indicates a lower cost to attain new leads. The above formula is useful for analyzing entire campaigns. However, it can be tweaked to compare CPL between channels as well.
For example, if an advertiser has spent $4000 on a Google Adwords campaign that generates 50 new leads, their CPL would be $80. However, if they want to get more granular, they can subdivide by channel to offer valuable insights.
Say $2000 of this campaign spend was bid on ads in the Google Search Network, and 30 of the campaign’s leads converted from here. The CPL for the Search network portion of the campaign would be roughly $66.67, compared to the $100 CPL of the remaining Display network portion. This indicates the advertiser’s campaign to attain new leads is performing better in Search.
What is a good CPL?
Generally speaking, the lower an advertiser’s CPL, the better. However, there are many factors that influence what a healthy benchmark looks like, including the size of a company, its industry, annual revenue, target customers, and the sale price of its offering. Hence, there is no single answer that branches across every industry.
The answer also tends to vary between paid and organic CPL, as more money is funneled into paid channels to drive qualified lead acquisition. To understand how your campaigns measure up, it’s helpful to compare your CPL to other companies within your industry. A data review by FirstPageSage* highlights a few key points about CPL across industries.
For example, B2B CPL tends to run higher than B2C, with the exception of B2B SaaS companies that tend to drive higher lead conversions. Interestingly, the lowest industry benchmarks according to this study are in e-commerce, entertainment, and HVAC, indicating a high amount of leads netted for each of these industries in comparison to their ad spend.
*Source: Average Cost per Lead by Industry 2023, FirstPageSage
CPL vs CPA (cost per acquisition)
CPL is often conflated or confused with CPA, which is defined as the cost per acquisition or cost per action. The key difference between these two metrics is how far down the conversion funnel the converted customer is.
CPL exclusively measures leads or potential customers, whereas CPA measures closed customers (those who convert to a sale). The CPA includes the CPL, as the cost to acquire a lead is part of the overall cost of acquiring a customer. Comparing these two KPIs can tell you a lot about potential roadblocks on your customer’s path to conversion. As with CPL, a lower CPA is generally better.
The path from lead to conversion is a complicated pipeline, hence these two metrics are used to understand different aspects of the customer conversion journey. Whereas CPL generally indicates the success of a given campaign or channel, you can use CPA to measure the value of a campaign against the lifetime value of a customer. If the cost of acquiring a customer is not significantly outweighed by the revenue they put back into your business, or if they are unlikely to repurchase and thus increase their lifetime value, then that is a valuable indicator of a need to optimize or reduce ad spend.
How to improve CPL
Improving your CPL means decreasing the amount of money it takes to garner a lead. There are several strategies for this, so it’s important to experiment with approaches and find the one that works best for your company.
Here are seven popular strategies for CPL improvement, how they work, and what insights they can provide:
- Segment via Network: Analyze your campaigns’ CPL by network, opting out of Search Partners if it isn’t driving the results you want.
- Segment via Device: Mobile-optimized landing pages are necessary if you’re driving users to your site via mobile. However, if you don’t have them optimized yet, breaking down your campaigns by device can tell you if your mobile campaigns are hemorrhaging cash without driving sufficient leads.
- Initiate a remarketing campaign: A well-crafted remarketing campaign can help drive more leads where a basic campaign wouldn’t, thus lowering the CPL over time. If you have the budget for advertising or are not currently running a remarketing campaign, this is an excellent avenue to try.
- Do an ad review: When in doubt, reverting to account management best practice is always a good call. Conducting an ad review with an ad performance report can tell you what is hindering viewers from converting into leads. For example, if your ad is performing well but your landing page isn’t, this could be an indication that a faulty contact form or poorly-written landing page is hindering your CPL.
- Use A/B testing: A/B testing is a diagnostic tool that provides valuable insights into what converts your target users into leads. Ensure you have two ads running in a given campaign and use them to compare, analyze, and optimize based on their individual CPLs.
- Integrate negative keywords: Negative keywords are an underutilized tool, as it can be nerve-wracking to prune low-performing keywords on the off-chance they grant a lead in the future. However, it’s important to treat your keyword set like a carefully curated selection, driving your ad spend toward keywords that demonstrably convert to leads and eliminating the ones that simply eat up your resources.
Let’s take a look at two case studies for CPL optimization as blueprints for how CPL can lead to an enhanced campaign.
Max Life Insurance gets 6X more leads at 10% less cost
Outbrain helped Max Life Insurance multiply their qualified leads – optimized for top and mid-funnel events – by six, all while reducing ad spend by 10%. These leads were optimized for a higher likelihood of conversion by using a semi-automatic conversion bidding strategy on the Outbrain platform and trimming away non-performing sites.
Plannuh reduces CPL by 66% via LinkedIn ad optimization
In this example, the team at Plannuh – a cloud-based marketing planning system – identified LinkedIn as a key growth opportunity for their business. Using a newly-released book as a lead magnet, they utilized LinkedIn integrations with a goal of acquiring thirty new leads per day. Using a holistic strategy, they reduced their average CPL from $140 to $48.