What is CPL?
Cost Per Lead, often abbreviated to CPL, is a formula or model in online marketing. In short, it tells you how much it costs to acquire a new lead, that is, a potential customer.
How to calculate CPL
The formula for calculating the CPL is as follows:
CPL = Total cost of an ad campaign / Number of leads generated.
For example, let's say you spend $10,000 on a campaign and it brings you 50 leads. In that case, your CPL would be 200 DKK. Normally, internal costs are not included in the CPL amount. In other words, Cost Per Lead is an expression of the external cost of obtaining a lead.
What is a good CPL - when is a lead profitable?
It depends on a variety of factors, so it's difficult to set a standard. Do you sell watch batteries for 25 kroner each, or do you sell new motorcycles for 250,000 kroner each? In these cases, a good CPL will be very different. In other words, it goes without saying that the more expensive your product is and the higher your profit margin, the higher a CPL you can pay.
There are also other important things, such as your DB, or contribution margin. This is how much of the sales price you actually keep after all expenses are deducted. If you sell a product for $500, but your expenses (such as shipping, complaints, storage, running an online store, any salaries and much more) add up to around $350 per product you sell, then your DB is pretty tight, and it's clear that you can't spend $300 to get a sale, let alone a lead.
Because a lead is not a sale. This means that you usually still need to spend money to get a lead to complete a purchase. And since not all of your leads will end up buying something, you also have to expect that some of them will have to come in before it pays off. These considerations are therefore important in CPL marketing.
Related concepts in marketing
Here are some related abbreviations you're likely to encounter:
- CPMCost Per Thousand. This is the cost of a thousand pieces of something, for example, impressions of an advertisement. For example, it could be DKK 1,500. This means that each impression costs 1.50 DKK. This would then be CPI, or Cost Per Impression, which some prefer to CPM.
- CPCCost Per Click. This is the cost for each user who clicks on your ad. If your CPM is £1,500 and one out of 25 users clicks on the ad, your CPC will be £37.50. The 24 users who didn't click also cost something, but CPC is the cost of the users who actually click.
- CPACost Per Acquisition/Action. This is the cost of each user who ends up completing a purchase. If your CPC is $37.50 and one in 10 of those clicks turns into a purchase, your cost for a purchase would be $375.
