What is a Good Cost Per Lead?
One of the most common questions I hear from clients is, "What is a good cost per lead?" In fact, I get asked this so often that I now answer it before it's even brought up!
As an account manager in a digital marketing agency and a freelancer working with private business clients, I frequently report on digital marketing performance. One of the key metrics I always include is Cost Per Lead (CPL).
Understanding Cost Per Lead
CPL depends on many factors—yes, I know, the classic marketing response: "It depends!" But the truth is, it really does. Your CPL can fluctuate due to various factors such as:
- Industry type
- Time of year and seasonality
- Economic conditions
- Competition and ad bidding
- Marketing platform (Google Ads, Facebook Ads, etc.)
Because CPL is constantly shifting, it's crucial to have a system in place to monitor your CPL and, ultimately, your Return on Investment (ROI).
How to Calculate Cost Per Lead
Before determining whether your CPL is good or bad, let's define it.
Cost Per Lead Formula:
Total Ad Spend / Number of Leads = Cost Per Lead
You can calculate CPL over different time periods, such as monthly, quarterly, or annually, to spot trends and optimize your marketing efforts.
Defining a Lead Correctly
One of the biggest mistakes businesses make is not clearly defining what a lead is. Leads can be inflated by counting multiple actions as leads, even when they don't hold real business value.
A lead should be a contact that can be followed up on—such as a website inquiry form submission or a tracked phone call. It should not be a mere click on an ad or a phone call unless you can confirm that the person landed in your CRM, inbox, or voicemail.
Tracking ROI: The Next Step
Now that you've defined what a lead is and started tracking CPL, the next logical question is: How do you calculate Return on Investment?
To measure ROI accurately, you need additional metrics beyond CPL, such as:
- Lead-to-sale conversion rate
- Average sale value
- Net profit per sale
Advanced ROI Metrics
For more granular insights, consider tracking:
- Conversion rate by lead type (e.g., phone calls vs. web forms)
- Conversion rate by platform (e.g., Facebook Ads vs. Google Ads vs. Organic traffic)
ROI Formula:
(Revenue - Cost) / Cost = ROI
For example, if you spend $1 on ads and generate $3 in profit, your ROI is 3. The higher the ROI, the better your marketing performance.
Optimizing Your CPL & ROI
Once you start tracking CPL and ROI, you can optimize your campaigns to improve results. Here are some factors that impact CPL and ROI:
1. Landing Page Experience
Your website's conversion rate plays a huge role in CPL. A poorly optimized landing page can drive up your cost per lead even if your ads perform well. Focus on:
- Fast load times
- Clear call-to-actions (CTAs)
- Mobile-friendly design
2. Audience Targeting & Ad Creatives
Your CPL varies depending on how well you're targeting your audience. Consider A/B testing different:
- Audiences (demographics, interests, retargeting lists)
- Ad creatives (images, videos, copy variations)
- Bidding strategies (manual vs. automated bidding)
3. Competitive Market Conditions
External factors, such as a surge in competitor ad spend, can increase CPL. Monitoring competition and adjusting your strategy accordingly is crucial.
Final Thoughts
So, what is a good cost per lead? The answer depends on your industry, target audience, and overall business goals. Rather than focusing on a single CPL benchmark, the best approach is to track ROI and optimize marketing spend for maximum profitability.
To get started, I recommend using an ROI calculator to understand your return on ad spend and make data-driven decisions on where to allocate your budget.
By continuously refining your CPL, tracking ROI, and improving conversion rates, you can maximize the effectiveness of your digital marketing campaigns and drive real business growth.
