What Is the Cost Per Lead (CPL) Formula? (And How to Reduce Your CPL)
When you run a digital marketing campaign, you need to monitor key metrics, including cost per lead (CPL). If you want to maximize your profits, it’s important to monitor and reduce the cost of obtaining new leads — your CPL.
On this page, we’ll look at the formula for calculating CPL, as well as tips for reducing CPL to produce better results for your business. If you need help lowering your CPL, call us today at 888-601-5359 to speak with a strategist.
What is CPL?
CPL is the amount you spend to obtain new leads. These costs stem from any advertising campaigns you run to obtain leads and get them to convert.
What is the CPL formula?
The cost per lead or CPL formula is: Total Marketing Spend / Total Number of Leads Generated. Use the cost per lead formula by totaling your marketing spend for a time period and dividing it by the total number of leads generated during that time period.
How to calculate CPL
To figure out your potential CPL, you need to use the CPL formula:
CPL = Total Marketing Spend / Total Number of Leads Generation
For example, let’s say you spent $1000 on a pay-per-click (PPC) advertising campaign and obtained 50 leads. With these numbers, your CPL is $20. You spend $20 for each lead you converted.
So, how do you know if your CPL is good or bad?
This depends upon how much your leads spend when they convert. If your CPL is $20 and your leads spend an average of $100, then this is a good CPL rate. If your leads spend $20 or less, you’re going to start digging into your profits.
Why is the cost per lead formula important?
The cost per lead formula is important for a few reasons:
- Determine the average cost for generating a lead via advertising, email, or another channel
- Investigate which channels generate the most qualified leads
- Calculate the return on investment (ROI) of different channels and campaigns
When you calculate CPL — and upgrade the formula by focusing on qualified leads — you can better understand how effective your marketing efforts are at generating high-value leads for your business.
What methods track CPL?
Now that you know a bit more about CPL, you may wonder how you can track your CPL using specific marketing strategies. Let’s take a look.
1. PPC advertising
PPC advertising is a great place to track CPL. These ads appear at the top of the search results, above the organic listings. PPC ads attract leads that are ready to convert.
When you run a PPC advertising campaign, you can track your CPL. Since PPC allows you to choose the budget that works best for your business, you have more control over your CPL. You can set a budget that will keep your CPL low, so you can earn a better profit.
PPC advertising is an effective method, too. It helps you obtain valuable leads that are more likely to convert. In fact, PPC leads are 50 percent more likely to convert than organic leads.
2. Social media ads
Social media ads make it easy for you to target people that are interested in your products. This leads to more conversions for your business, which positively impacts your CPL.
With social media ads, there are two main focuses for advertising campaigns: impressions and conversions. When you focus on impressions, you want your ad to reach as many people as possible without worrying about who clicks on you ad. This can lead to a higher CPL because you aren’t focused on creating ad content that gets your audience to click on it.
You can also focus on earning conversions. Since social media ads are targeted, they end up in front of leads that are more likely to convert.
Like PPC, you set the amount you want to spend on your social media advertising campaign. The amount you set with affect your campaign’s success, as well as your CPL.
Social media ads are a great place to monitor your CPL. You control the budget, which helps give you more influence over your CPL.
3 tips for reducing your CPL
When you keep your cost to obtain leads low, you create a larger margin for profit. Here are three tips to help you reduce your CPL.
1. Zero in on your target audience
You may find that your advertising campaign isn’t attracting as many leads as you like. It’s giving your business a high CPL. What can you do to improve your ad’s performance?
One solution is to narrow in on your target audience. If you have a large target audience, you may not be seeing results because you’re not getting specific enough with your ad campaign. To see better results, you need to narrow in on the people you want to reach in your target audience.
Let’s say you own a clothing store that sells men’s, women’s, and kid’s clothes. In this case, you would want to hone in on one group (let’s say women) and create multiple subgroups that share similar characteristics. You can base this information off demographics, socioeconomic status, and marital status, amongst other criteria.
This will help you create subgroups within your women’s demographic. You can then create ads and campaigns that appeal precisely to those groups. This ensures that you won’t waste money trying to reach leads that aren’t interested.
Audience segmentation is extremely beneficial to any campaign. It helps you deliver the right message at the right time. You’ll create a more effective campaign for your business because your ad content will be more appealing to your audience.
By narrowing your focus, you will create a campaign that resonates better with people in your audience. This will lead to more conversions and lower your CPL. It’s a great way to produce a better campaign for your business.
2. Focus on creating relevant content
Relevant content is crucial for earning conversions. If you want to earn conversions, you must deliver content that aligns with your audiences’ interests.
This is where audience segmentation benefits your business. When you segment your audience, you can figure out what content appeals the most to them. It allows you to deliver a tailored message to your audience.
Not every member of your audience wants the same thing from your business. A clothing store caters to different types of people beyond just men, women, and children. They appeal to mothers, fathers, grandparents, young professionals, teenagers, and more.
If a clothing store sent one marketing message to all women interested in their clothing, it wouldn’t produce the best results. On the other hand, segmenting those women by their career status, family status, or marital status would help deliver a more relevant message to each of those groups.
A young, single professional woman wouldn’t want to see ads for children’s clothing, but a married mother with two children would be interested in that ad. Even though they’re both women, they have separate interests with a clothing company. It’s important to segment your audience by these differences to deliver more relevant content.
Relevant content leads to increasing engagement. Your audience is more likely to interact with your content if it aligns with their needs.
3. Use remarketing
Remarketing is a great way to get leads to convert. Sometimes people will see your ads and take interest, but they just don’t act. A remarketed ad can help them convert into a customer.
These ads cost very little to run and are extremely effective. When people see remarked ads, they think about buying your products or using your services again. Many times, it is the final nudge they need to convert.
Remarketed ads help your business earn more conversions. More conversions mean that you lower your CPL. Remarketed ads will help you reduce your CPL to make a profit.
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Reduce your CPL with WebFX
When you run your advertising campaigns, it’s important you monitor your CPL. If you want to earn a profit, you need to keep your CPL low. At WebFX, we have the knowledge and expertise to implement strategies to keep your costs down and increase your profit.
With WebFX, you unlock a team of more than 500+ experts (and more than 28 years of experience) that will bring their knowledge and expertise to your campaign so you can drive more qualified leads for your sales team.
As a full-service digital marketing company, we specialize in methods like PPC advertising and social media marketing and have experience creating successful campaigns.
If you want a company that drives results, look no further. To date, we’ve driven over $6 billion in sales and over 24 million leads for our clients. We focus on driving success for our clients first.
Our clients love the work we do for their campaigns. We have over 1,100 client testimonials that speak to the work we do for them. If you want to know what it’s like to partner with a top PPC company like WebFX, check them out!