If you currently manage a small business, an essential metric to understand is the cost of your leads. Understanding business lead generation and conversion is a fantastic first step! From there, the secret to levelling up your marketing strategy is learning how to calculate and compare the cost of your leads.
Cost per lead, or CPL, refers to the price your business pays per generated lead. When you compare this cost to the price of your products or services, you can gauge the cost-effectiveness of your advertising campaign. This allows you to stay on top of your business’s overall cash flow and revenue.
There are so many reasons you should calculate and compare the cost of your leads. Most importantly, it allows your business to calculate its potential return on investment (ROI) and assess its advertising budgets. Remember, the cheapest leads are usually not the best quality, so keeping costs to a minimum doesn’t equal business success.
This article will help you understand how to calculate your businesses’ cost per lead, helping you identify the best business lead generation options. You’ll also be able to compare the average CPLs across marketing channels and industries, so you know where your business sits.
Keep reading to learn everything you need to know about ‘cost per lead’ for your business.
What is Cost Per Lead?
Cost per lead, or CPL, refers to the price your business pays for each lead they generate. Measuring CPL involves looking at the total cost of the lead generation versus how many leads it brings in, indicating if a marketing activity is really worthwhile.
Whether you are advertising on Google, Facebook, or another platform, you can calculate your cost per lead by looking at the total cost of your advertising campaign and how many leads have resulted. This pricing model allows business owners to determine if their advertising campaigns are effective enough.
Cost per lead is a great metric as it applies across all sources of leads for your business – from social media advertising through to lead generation platforms and even traditional advertising methods, like direct mail campaigns or Yellow Pages ads.
Other lead generation activities include:
- Advertising at physical events like trade shows
- Public relations advertising
- Customer referral programs
- Advertising online, using platforms like Facebook, Instagram, Google and LinkedIn
- Traditional advertising, like newspaper ads, radio ads and TV
- Email marketing campaigns
- Online webinars
- Display advertising
A reasonable cost per lead will differ from each industry and business, as it will depend on the average cost of your products or services. If you charge a premium for your products or services, your business can afford a much higher CPL. However, if you rely on competitive pricing and have low margins, your ideal CPL will be less flexible.
But for every small business, keeping cost per lead in proportion with revenue is important. Lead generation activities your business performs will have differing CPL – any good marketing mix will include some low-cost and some high-cost strategies. The key is achieving a balance that works best for your business.
How Much Should I Spend Per Lead?
When it comes to finding the ‘best’ cost per lead, there is no one-size-fits-all dollar amount. CPL is individual to each business and differs drastically between industries and services. You should also look at CPL for individual campaigns and your lead generation as a whole.
How much you should spend per lead depends entirely on your business, your margins and specific profitability goals.
There are five key pieces of data that will help you establish what your business should spend per lead. They are:
- The average price of your products or services
- Whether your service is a one-off purchase or a regularly provided service
- The average profit margin for your sales, excluding the cost of lead generation
- The average number of leads you need to score a sale (conversion rate)
- Your business’s growth strategy; whether you’re looking to maintain, grow, or aggressively grow your business
With this data on hand, you’re one step closer to defining a reasonable cost per lead for your business.
Note that cost per lead has some limitations as a metric. It doesn’t account for lead quality – for instance, a cold lead versus a warm lead, or a high-value lead versus one with small margins. It also doesn’t account for conversion rate, or the number of sales that actually result from those leads. Like any marketing metric, it should be taken with a grain of salt.
Paying more for very warm leads makes sense, as these leads are far more likely to convert. On the other hand, cold leads – those who haven’t actually shown interest in the service yet – are less valuable to your business.
Keep reading to learn how you can calculate cost per lead and compare your business to the industry average.
How to Calculate Cost Per Lead
Before you can begin analysing the cost of your leads, you will need to use a formula to calculate your CPL. The cost per lead formula is super simple:
Cost of Lead Generation Campaign The Total Number of Leads You Receive = Cost Per Lead (CPL)
Let’s look at an example to make it easier. Let’s say you are running a per-per-click advertising campaign and spend $1000. If you receive 50 leads, simply divide 1000 by 50. This will leave you with an answer of 20, meaning your cost per lead is $20. You can also use an online cost per lead calculator to quickly and accurately determine your cost per lead.
Some forms of lead generation will provide you with a direct cost per lead. For instance, lead fees through Bizza range from $20 to $67 depending on the service and location. With no ongoing contracts or fees to factor in, there’s a clear cost per lead on each job.
To calculate your business’ cost per lead through the Bizza platform overall, you’d add up the lead fees paid on all leads you’ve received, then divide it by the number of leads. This would be your average cost per lead through Bizza, and this can be repeated for other lead generation platforms or advertising channels.
This method can be used to compare cost per lead through different parts of your marketing strategy – for instance, Google Ads vs lead generation platforms, or Bizza vs Hipages or Serviceseeking. Cost per lead metrics can help you allocate your marketing budget more effectively for long-term profitability.
You can also use different variations of this formula to determine other factors, such as the number of leads you need to get to keep your desired cost per lead or how much you should spend on your campaign.
What should you do with that number now you know how to find it? Well, the next step is to compare cost per lead across your lead generation activities, as well as comparing to the average in your industry.
What is the Average Cost Per Lead by Channel?
The average cost per lead by channel depends greatly on the channel, and can range from $30 per lead to over $800 per lead.
Below is information on the average cost per lead by channel in the US. Using this information, we can guage and estimate the average cost per lead by channel here in Australia.
Average Cost per Lead by Channel
|Lead Generation Channel||Average Cost Per Lead ($USD)|
|Events, Fairs and Trade Shows||$811|
|Traditional Media (Radio, TV, Print)||$619|
|Public Relations (PR)||$294|
|Search Engine Advertising||$110|
|Webinars and Online Seminars||$72|
|Social Media Advertising||$58|
|Search Engine Optimisation||$31|
As you can see, there is huge variance in the cost per lead depending on what channel you use. These stats are in USD, which means they will cost even more when converting to AUD.
On top of that, this is only the average cost per lead, and those leads may not guarantee work. Using the expensive, higher end lead channels like television advertising, much of the ad spend is wasted on the wrong audience. Not only is this not affordable for small businesses, but it also isn’t good value compared to ‘warm leads’ already looking to buy.
Bizza is an excellent example of a lead generation alternative. Bizza is cost-effective as exclusive leads cost between $20 and $70 depending on the job, and partner businesses are free to quote their own premium pricing to the client.
Unlike other lead generation methods, these are hot leads, for people who are ready to pay for your service. These leads go to you and you alone, meaning there’s no price competition necessary.
What Is the Average Cost Per Lead by Industry?
Your cost per lead will largely depend on what industry you operate in. Industries offer different products and services, operate during different seasons, have different price points, and many other factors.
To compare a construction business’ cost per lead to a hair salon’s is like comparing apples and oranges. That’s why looking at other businesses in your niche is the best reference point. Many industry bodies and publications will share data on typical cost per lead.
To help you make better sense of this, we have gathered the projected average cost per lead in each industry within the US as a point of reference. Comparing cost per lead with local competitors in your region will always net you the most valuable reference point.
Average Cost per Lead by Industry
|Industry||Lowest CPL ($USD)||Highest CPL ($USD)||Average CPL ($USD)|
|Healthcare and Medical||$36||$286||$162|
|Industrial and Manufacturing||$33||$235||$136|
What is Cost Per Conversion?
Cost Per Conversion (or CPC) is the amount it actually costs your business per client that is converted from a lead to a sale. CPC is calculated using the ratio between total views an advertisement has and the amount of successful sales.
A conversion is what happens when a sale is closed with a lead: they become a paying customer who is buying a product or using a service from your business. This is one of the best ways to gauge the success of your advertising campaign.
Your CPC will almost always be higher than your cost per lead. This is because you will have to work to transform your leads into conversions, and not all customers will be ready to commit to your product or service when inquiring.
Most advertising platforms and marketing management tools will allow you to track how many conversions you received from your ad campaign. To determine your cost per conversion, divide the total cost of your advertising campaign by the number of successful conversions you got. The lower your CPC, the better.
The average cost per conversion across all industries is $48.96 in the US, according to Wordstream. Obviously, precise figures and how cost-effective this price is will depend on your individual business and the platform you opt for.
How to Lower Your Cost Per Lead
Now that you understand what your cost per lead refers to and how to calculate it, you may not be happy with your results! But that’s okay; it is never too late to strategise and aim to lower your cost per lead and overall advertising costs.
One of the most important things to remember is Cost Per Lead does not consider lead quality, or how likely that lead is to become a paying customer. That’s why lead costs can vary so much when purchasing leads. Some lead generation companies may provide cold leads for as little as $5, but success rates for cold calling are notoriously low, and will also eat up a lot of your day-to-day labour hours.
On the other hand, paying more for warm leads and high quality leads can be well worth it. Since these customers are actively looking to book a service, you’ll need less time and energy to convert them, and your conversion rate will be dramatically higher.
With that in mind, here are our top tips to lower your average cost per lead:
- Improve your digital ads – Your first step is to make sure your ad is attracting customers. Your ad should be bold, easy to read and look professional. You may want to try A/B testing – comparing two digital ads (or versions of an ad campaign) to determine which works best. If this is out of your comfort zone, consider hiring a marketing agency to help you create your first few ads.
- Narrow your target audience – Be sure to analyse your ads and customer data to arrow down your target audience as much as possible. If you are struggling to convert your clicks into leads, you may be targeting the wrong people. Take the time to test your ads and analyse who your ideal target demographic is. Collecting current client data is the best way to understand your audience.
- Take advantage of customer testimonials & reviews – Positive customer reviews are one of your most powerful advertising tools. Inquiring customers tend to trust the opinions of previous customers genuinely. Make use of them and include them in your ad copy or on your landing page to give your leads confidence they can trust your business.
- Optimise your website – Remember, your ads will be leading people directly to your website, so your site needs to look just as good as your ads. You should make sure your website is running fast, suited to mobile, and easy to navigate. Include a strong call to action and easy access to forms and bookings.
- Simplify your landing page – It is always clever to keep things simple in advertising. To make your landing page as effective as possible and more likely to convert leads, it should be straightforward and easy to read. Make sure it only has one goal and doesn’t ask too much of your customers.
- Consider other sources of leads – If advertising is delivering a poor cost per lead, or a poor conversion rate, consider the value that lead generation platforms have to offer. When using an exclusive lead provider like Bizza, powered by Jim’s Group, you’ll be receiving warm leads at a clear cost per lead each time. Since these leads are actively looking to book a service, you can also expect a healthy conversion rate compared to ad-generated leads.
Does Facebook or Google Ads Generate More Leads?
Google ads are often considered better due to the large reach that Google has, even compared to Facebook, especially for trades. However, Facebook ads have more control over targeting who sees your ads, which is often better for selling products.
Trades often find more success using Google ads. Typically, when people need a tradesperson they search Google for a reliable one near them, which is when Google ads excel. On the other hand, impulse purchases and products do much better on Facebook, since you have far more control over who sees your product ads, and when.
What Are Pay Per Click Ads?
Pay per click is a type of advertisement where you are charged each time an ad is clicked, and is a common part of digital marketing. Everytime the ad is clicked, the viewer will be taken to your website, and your daily budget will be charged with the cost per click.
Pay per click advertising campaigns can be paid through a flat rate or an auction/bid-based model.
Want to convert more of your incoming leads? Check out these great resources: