Cost per lead (CPL) is one form of performance-based adverting. In some ways, it’s a middle ground between online advertising models like cost per impression (CPM) where a publisher is not directly rewarded or punished tied to how that traffic performs, and cost per sale where the publisher bears complete responsibility for how that traffic converts… even though they can’t control everything that happens on the advertiser’s site.
Unlike cost per sale, the company generating the leads doesn’t have their compensated directly to the sales conversion of those leads. However, for an advertiser to keep paying for leads from the same source, the leads ultimately must produce an acceptable conversion rate.
The cost per lead model helps share the responsibility for performance between publishers and advertisers. Publishers are responsible for putting their ads in from of the right audiences in the right ways to generate response. Advertisers are responsible for maximizing the conversion of those leads into sales.
What is a Lead?
Before diving too deep, let’s first define the term “lead.” A lead is a potential customer that has arrived through one of your marketing channels. They have provided you with a way to contact them, such as a phone number, an email, or even just a name. The type of contact information collected will depend on how the contact got to you and what kind of business you operate.
Where Do Leads Come From?
Lead generation can come from digital marketing channels or from the good ol’ meatspace. For instance, you can get someone’s email through a Google AdWords campaign or you could get someone’s business card at a trade show. Both are examples of leads, and each has unique costs associated with it.
What is a “Qualified” Lead?
A qualified lead is like a regular lead, but better. Not only does a qualified lead provided you with contact information, but they have been vetted, through validation methods such as questionnaires and market research, to make sure that they are actually in your target audience.
A qualified lead is someone who has been identified as having a need for your services, the budget to buy, and a desire to find a solution to the problem you solve. A qualified lead should have a much higher than average likelihood of ultimately purchasing your product or service (converting), which is why many companies track regular leads versus marketing qualified leads and sales qualified leads.
Who Might Be Interested in Determining Cost Per Lead?
Anyone who wants to track their marketing effectiveness at a granular level should know how to determine their cost per lead. If you can lower your cost per lead while generating the same revenue from each lead, you’re doing it right.
CPL is an especially important metric for direct response marketing, which is marketing that includes a call to action. Examples of this type of marketing include digital display ads with CTAs such as “Click Here to Buy” or “Get the Guide”. In these instances, it’s straightforward to determine the cost per lead coming through the channel because the user action is easily tracked. You simply take the amount you spend on the channel and divide it by the number of leads generated.