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, i.e. a potential customer.
How to calculate the 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 crowns. 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 various factors and is therefore 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, the more expensive your product and the higher your profit margin, the higher a CPL you can afford.
There are also other important things, such as your DB, or contribution margin. That is, how much of the sale price you actually keep after all expenses are deducted. If you sell a product for 500 kroner, but your expenses (such as shipping, warranty, storage, running the webshop, any salaries and more) run up to about 350 kroner per product you sell, your DB is pretty tight, and it's clear that you can't spend 300 kroner to get a sale, let alone a lead.
Because a lead is not a sale. That means you usually still have 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 figure that a lot of them will have to come in before it pays off. These considerations are therefore important to make in CPL marketing.
Related concepts in marketing
Here are some related abbreviations you're likely to encounter:
- CPM: Cost Per Mille. It is the cost of a thousand pieces of something, for example views of an advertisement. For example, it can be 1,500 crowns. This means that each display costs 1.50 crowns. This would then be CPI, or Cost Per Impression, which some prefer to CPM.
- CPC: Cost Per Click. This is the cost for each user who clicks on your ad. If your CPM is 1,500 DKK and one out of 25 users clicks on your ad, your CPC will be 37.50 DKK. The 24 users who didn't click also cost something, but for CPC you add up the price of the users who actually click.
- CPA: Cost Per Acquisition/Action. It is the cost for each user who ends up completing a purchase. If your CPC is 37.50 DKK and one in 10 of those clicks turns into a purchase, your cost per purchase will be 375 DKK.
