What Is Cost Per Lead (CPL) and Why Should You Track It?

When you run marketing and sales campaigns, what’s your ultimate goal? For you and every other business, it’s to earn revenue. But to do that, you need to drive sales. And you can’t drive sales without first having leads and knowing your cost per lead, which is how much you spend on each lead.

Leads are people who express a clear interest in purchasing from your company but who haven’t yet committed to doing so. You’re rarely going to convert someone into a customer on your first interaction with them. You first need to turn prospects into leads and then nurture those leads to conversion.

But marketing costs money, and you may find yourself unsure how much you’re spending just to earn leads. That’s where cost per lead (CPL) comes in. But what is cost per lead, and how can you calculate it? Keep reading for the answer. Then subscribe to Revenue Weekly, our email newsletter, for more digital marketing tips!

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What is CPL?

Cost per lead, or CPL, refers to the amount of money you spend, on average, for each lead you earn.

As we mentioned earlier, marketing costs money. And since marketing is how you generate leads, you could view your marketing spend as a way of paying to get leads. The question is, how many leads are you getting for your money? How much are you paying for each lead?

That’s what CPL allows you to figure out. Maybe you’re spending tons of money and not getting many leads for it. Or, maybe you’re spending a small amount of money and actually earning a lot of leads. That second situation is obviously the more desirable one — the lower your CPL, the better.

Metrics similar to CPL

CPL isn’t the only metric of its kind. You might have heard of other metrics that relate to how much money you spend. It’s a good idea to make sure you understand the distinction between those metrics, so here’s a brief overview of some similar cost-related metrics:

Note that all of those metrics, including CPL, measure how much you’re spending. However, they each do it in relation to a different reward — leads, clicks, impressions, and conversions.

Why do you need to know your CPL?

We’ve now established what a CPL is. But why is it important? What makes it worth tracking?

The answer is that your CPL lets you see what kind of value you’re getting for your money. You need to drive leads to earn revenue, but you also don’t want to overspend on those leads. Looking at your CPL can help you figure out if your lead generation needs to be better optimized.

If you have an exceptionally high CPL, that means one of two things. Either you aren’t driving enough leads, or you’re overpaying. In either case, you’ll need to reevaluate your marketing strategy. But without looking at your CPL, you’d never know.

How to calculate CPL

You may be wondering how you can calculate your CPL. Fortunately, it’s a very simple process. All you have to do is divide your total lead generation spending within a given period by the number of leads you earned in that same period. If you were to write it as a formula, it would look like this:

Total lead generation spending / total number of leads = cost per lead

For the total lead generation spending, you want to count any money you’ve spent on things that can help you generate leads. Usually, that refers to ad spend, but you could have spent money on other lead generation strategies as well.

How to lower your CPL

As we’ve established, you want your CPL to be as low as possible. The question is, how do you lower your CPL?

There are a few different ways, and we’ll cover three of the best ones below.

1. Test out different ads

One of the best ways to lower your CPL is to improve the quality of your marketing so that it will generate more leads. But how do you know which changes will help you get more leads?

The answer is you run A/B tests. An A/B test is where you run two different versions of an ad, email, or webpage simultaneously. Some people see one version, and some see the other. Then you see which version drives more leads. Whichever it is, you use that version as your primary version going forward.

If you do this repeatedly, testing each change you make to ensure that you always use the better option, you’ll eventually get a marketing campaign that’s optimized to generate maximum leads.

2. Invest less money in your marketing

Driving more leads is one way to lower your CPL. But another way is to simply spend less money on earning them. By cutting back on your lead generation budget, you can have a shot at bringing down your CPL.

But here’s the thing — this only works if you keep generating the same number of leads. If your spending goes down, but your leads also decrease, your CPL will stay the same. So, you have to find ways of cutting costs that don’t require you to sacrifice the quality of your marketing.

If you’re using paid advertising, one way of doing this is to change which keywords you’re bidding on. Instead of bidding on high-traffic keywords that cost a lot, find keywords that cost less but are equally effective for your audience. The best way to do this is to find keywords that are highly specific to your industry.

Another method is to trade out some of your paid advertising for more organic marketing methods, like search engine optimization (SEO). That’s not to say you should drop paid advertising completely, but relying more heavily on SEO sometimes means you can spend less on your ads.

3. Hone your audience targeting

Finally, consider carefully who you’re targeting with your marketing. Even if you somehow engineered a marketing campaign that worked flawlessly and barely even cost any money, it wouldn’t help you if you weren’t directing it to the right people.

To generate leads, you need to ensure you’re reaching people who actually have reason to be interested in what you’re selling. Those are the people who will care enough about you to become leads.

To do this, take the time to analyze your customer data and see who’s buying from you. Then target those sorts of people with your marketing campaigns.

Time to Level Up Your Sales

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Let WebFX help you optimize your lead generation and lower your CPL

As we’ve just established, lead generation is a huge contributor to bringing down your CPL. By optimizing your lead generation marketing efforts, you can offset the balance and pay less for each lead. For that reason, you should consider partnering with a marketing agency like WebFX.

WebFX has over 25 years of experience with lead generation services, so we know exactly how to hone your marketing to bring in more leads and decrease your CPL. We can also help you find the best ways to reduce costs for your advertising and marketing campaigns.

To get started with us, just call 888-601-5359 or contact us online today!

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