Cost Per Lead Definition

Cost per lead (CPL) is a metric that measures the amount an advertiser must pay to acquire a qualified lead. In online marketing, CPL is sometimes implemented as a form of performance-based marketing wherein advertisers pay for leads only, however this is not always the case. Advertisers may also be interested in tracking their CPL across any form of paid traffic, such as pay per click (PPC) on a platform like Google Adwords.

Notably, conversion rate is another metric which goes hand-in-hand with understanding the cost per lead of a campaign. Knowing the conversion rate of each qualified lead enables advertisers to track how many leads actually become paying customers, and thus the maximum cost per lead for profitability can be determined.

Cost Per Lead Example

A company decides to advertise online through Google Adwords. The business wants to maximize their profit, so they keep a close eye on all the relevant metrics—specifically, the cost per lead.

After doing a test run of the campaign, the company discovers that their cost per lead is $5. At this point, it becomes important for the business to also know their conversion rate; for the sake of this example let’s say that it’s 5%. The service they’re selling customers has a net profit of $100.

With all of this data, the business can come to some conclusions. With a $5 cost per lead, the business knows that they’ll have to spend $500 to gain 100 qualified leads. If 5% of those leads convert into paying customers, the company will have grossed $500—they broke even, but aren’t profitable yet. The business decides to try A/B testing to improve the campaign.

Why is Knowing the Cost Per Lead Important in Strategic Marketing?

Strategy

Tracking and understanding a variety of metrics can help businesses optimize their online advertising campaigns, and cost per lead is no exception.

Lead Generation

Knowing the cost per lead of any advertising campaign is key to overall profitability.