For lead-generation advertisers, an accurate and profitable cost per lead goal is crucial to building a marketing strategy that maximizes returns. Without a clear understanding of your acceptable cost per lead (CPL), you’ll struggle to determine which channels and campaigns are most effective at driving leads, and which ones are wasting your money.

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Finding your acceptable CPL will help determine your ad strategy. Image via Pixabay.

In a perfect world, you would have an in-depth understanding of your sales cycle, close rates, revenue per new customer, and target customer acquisition cost to help you determine a CPL goal. In the real world, pinpointing that data can be a challenge for even the most advanced advertisers for a variety of reasons, like tracking issues, changes in sales process or lead qualification systems, or a limited amount of historical data.

Despite the challenges, as long as you understand your acceptable cost per customer acquisition and have a few backend lead metrics, you can work backwards to determine your acceptable cost per lead threshold. Here’s are the metrics you’ll need to understand in order to reverse-calculate your front end CPL goal.

Customer Acquisition Cost (CAC) Goal: How much is your organization willing to pay to acquire a new customer?

Lead quality %: What percentage of raw incoming leads are qualified potential customers? This will help you determine your Cost per Qualified Lead (CPQL) target.

Close rate: What percentage of qualified leads turn into paying customers?

From there, use the calculation below:

(CAC Goal) * (Close Rate) = CPQL Target

(CPQL Target) * (Qualified Lead Rate) = CPL Target

Example

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With additional metrics, you can produce a more sophisticated calculation. This is a great start though!