March 12, 2020
Just For Fun: Can Demand Gen Practices Improve Your Dating Life? An Examination.
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.
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
With additional metrics, you can produce a more sophisticated calculation. This is a great start though!