Do you know your organization's cost-per-lead? The sad truth is, more often than not, when I ask prospects that question, I get a blank stare. Knowing your cost-per-lead can help you make incredibly informed marketing decisions (ones that actually produce ROI), and it'll make your executive team happy.
Let's start at the beginning.
What Is a Cost-Per-Lead?
Marketing on the Internet bears many similarities to traditional marketing, but there are key differences. Understanding them is critical to your success in the digital world. Lead-pricing is an excellent way for an organization to gauge the efficacy of a marketing activity.
In the Pay-per-click (PPC) model of web advertising you, as the advertiser, will pay a publisher for every click on an advertisement of yours, even if this click does not lead to a purchase. A Cost-per-lead (CPL) approach means that you calculate how much it costs to generate each lead obtained for a particular activity.
How Do You Determine Your Own Cost-Per-Lead?
The formula for determining Cost-per-Lead is simple. You look at how much you spend on a particular marketing activity and divide that amount by the number of new leads that you receive as a result of it. For example, if you spend $5000 exhibiting at a trade show and get 500 bonafide leads, your cost-per-lead is $10. On the other hand, if you spend the same $5000 and only get 5 leads, your cost-per-lead will be $1000. Similarly, if 10 people fill out a lead form to download a resource that costs $500 to create and post, that means that the Cost-per-Lead for that resource was $50.
It should come as no surprise that businesses generally look for opportunities to reduce their cost per lead. This is done either by trying to increase the number of leads per unit cost, or by reducing the spend on an activity while hoping to keep the same number of leads.
Controlling Costs and Maximizing Earnings
Imagine, for the sake of easy explanation, that you have 100 leads over the course of a month. Let these leads cost $4,000 or $40 per lead. You cannot assume from this that 200 leads will cost you just $8,000. You can exhaust the possibilities of a campaign and end up paying that amount of money for far fewer leads.
In the end, finding the optimal lead cost requires proper study of the audience so that you pay enough to capture all the business possible without spending on leads that are just not out there.
Finding the sweet spot for your cost-per-lead will help you perfect your approach and garner the most lucrative traffic. Think of this dilemma as a marketing efficiency curve. You want to find the point on the curve where you get back the most for which you are willing to pay.