Marketing

How to Calculate and Reduce Cost Per Lead

By March 3, 2020 No Comments
how to calculate and reduce CPL

Inbound marketing focuses on giving the right person the right content at the right time, for the lowest cost. An integral part of this strategy is reducing cost per lead (CPL). Knowing how to calculate and reduce cost per lead ultimately means increasing your ROI. With a wealth of information showing who your customers are and how they find you, digital marketing makes it easier than ever to make information-based decisions about how to reduce your CPL.

How to Calculate and Reduce Cost Per Lead

Cost Per Lead vs Cost Per Acquisition

When calculating costs and deciding how to reduce costs per lead, it’s important to first decide between cost per lead (CPL) and cost per acquisition (CPA). Cost per lead looks at potential customers, while cost per acquisition looks at those who actually made a purchase.

If your business is based on direct online sales, CPA is probably a better metric to use. If your business uses a longer sales cycle with more interaction between leads and salespeople, CPL will make more sense. For this blog, we will use cost per lead, though many of these methods for reducing costs per lead or per acquisition will be similar.

How to Calculate Cost Per Lead

To know how to reduce CPL, you first need to know how to calculate it. On the surface, CPL is a fairly simple equation. However, to generate more actionable insights, you may need to alter this a bit.

Basic CPL uses the following formula: Total marketing costs / number of leads

You might calculate this at year-end to see how much you really spent to acquire your leads, and compare your CPL to average customer value, customer lifetime value, or customer spend. You might also dig a bit deeper to your CPL to examine how effective a particular campaign was, or how effective particular marketing activities are. This information can show you how to potentially reduce your costs per lead as well. For this, you’ll need to restrict your calculation to relevant marketing costs and leads.

Consider these ways to calculate your CPL:

  • By campaign: Add up only the time and resources spent on a campaign, and add up only leads gathered while the campaign is active.
  • By medium: Calculate the CPL of leads from social, content marketing, advertising, and other methods, and compare them. Keep in mind that these mediums often work together to bring in leads, so this will be approximate, not exact.
  • By quarter: If your leads generally come in waves with seasonal demand, compare the CPL of different time periods, and consider how you can better allocate your resources.
  • By Customer: Different departments, activities or campaigns might target different types of customers. If you’re spending more to gain customers that aren’t buying more, it might be time to reconsider your strategy.

6 Ways to Reduce Your Cost Per Lead

1. Compare CPL by Time, Customer, and Medium

With the CPL calculations above, you’ll have more information about how much you’re spending for different types of leads at different times. This alone can show you where you might rearrange your efforts. For example, instead of spending more on gaining difficult leads in the winter time when you’re a summer-oriented business, see how you can use these resources to better prepare for the summer. Or, if you’re spending more to generate leads from a new demographic, but these leads aren’t spending more, consider moving back to your target market.

2. Generate an Average CPL

With an average CPL, you can see where, in general, you might be overspending. Calculate this year over year across all leads and marketing activities to get an average. Then you’ll have a baseline for each marketing medium, campaign, new target market, and more.

3. Research Your Customer

Do you know what your customers really want and expect from your website, store, product or service? Or are you assuming? Do some buyer research to see how your customers actually use your website, what they expect from your product or service, or what they want from your store. Learn about their priorities, concerns, and problems, and how your business fits into their lifestyle. With this information, you can try out the following tactics that can help to reduce your cost per lead:

  • Craft marketing messages, including ad copy, that will get your customers’ attention
  • Place search ads on terms customers actually use
  • See what technology or media your target audience is using
  • Discover platforms with lower advertising costs
  • Place the most relevant products in the most obvious places of your store
  • Create price discrimination strategies to appeal to a larger number of customers

4. Refine Search Ads

If you’re using Google Adwords as a way to capture leads, make sure you’re getting the most out of the features Google provides. Refining your keywords, using keyword matching tools, adjusting your maximum cost per click or per day, and using other Adwords strategies can help you find the ideal balancing point between your CPL and customer value.

5. Use A/B Testing

You can’t really know what works for your ads, landing pages, product pages, and other strategies unless you test them. Letting your keywords, ad strategy, landing pages, and product pages become stale can cause your CPL to creep up slowly. Actively testing different keywords, pricing strategies, landing page copy, headings, and product page designs can lower your cost per lead over time instead.

6. Optimize Content Marketing

Content marketing can be extremely valuable. If your blog post or web page occupies a high position on a valuable search term, it’s generally more valuable than a higher position you paid for with an ad. Though content marketing is a way to generate organic, unpaid traffic, it’s important to remember that it isn’t free. The time, effort and skill required to produce SEO-optimized content that will win a top spot factors into your overall marketing costs. However, with a quality content marketing strategy, you can reduce your CPL with content that generates organic traffic.

If you’re producing content that isn’t bringing in leads from the web, reevaluate your SEO strategy. Your content should target keywords that are important to your audience and your audience should be able to find your content. Your blog posts, web pages, guides, and other parts of your content marketing strategy should all serve a distinct purpose.

Watch the progress of your CPL, and look at your marketing strategy and individual activities to see where your CPL might be out of line. Use data to reduce your CPL reliably. Staying current and relying on solid numbers will help you to make the most informed decisions about where and how to spend your marketing budget most effectively.

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