Evaluating cost of a lead

January 14, 2022

Whether you’re new to performance-based marketing or an industry vet, a term you will hear often discussed is CPL, or cost per lead. 

At the most basic level, a lead is a consumer who’s expressed an interest in a product or service, which can be generated in a number of different ways. Companies use leads as introductions and look to convert these consumers into buyers of their products and services.

Evaluating costs and lead quality

A key metric for both marketing and sales is the amount of money that is put into generating a lead. Every business is unique, and will calculate their cost differently, but the overall notion is simple: take into account all of the costs that go into generating leads, and divide that by the number of leads generated. This will give an average dollar amount of cost per lead (CPL). 

Depending on how the lead has been defined, there are different levels of costs associated with generating that lead based on the quality, intent of the consumer to purchase, and the volume you want to receive. Compare, for example, the cost and effort of asking a consumer to provide their email address for contacting them versus prompting them to complete a form with more detailed information about their needs. Both scenarios qualify as leads, but the consumer who is willing to offer more information is much more likely to become a paying customer based on the effort they had to exert. 

The more complex and in-depth your lead generation strategy, the greater the costs. However, the returns on your investment are likely going to be higher. For example, a highly targeted ad campaign for first-time car buyers is much more likely to convert for auto insurance offerings than a blanket campaign deployed to everyone under age 35, regardless of if they’ve recently purchased a vehicle. Setting up the campaign to  target specific demographics will require more time, energy, and likely cost, but the results can also be much stronger.

Why cost per lead isn’t enough

Once the lead is generated, the next task is to convert it into a sale. When evaluating processes, many businesses primarily focus on lowering their cost per lead. While it’s important to understand the cost of a prospect, ultimately, it's understanding how well that lead converts into a customer that marketers really care about.

For example, Home Remodeler XYZ pays $50 for a lead, and after receiving  100 leads pays $5000. They convert 20% of those leads (prospects) into appointments for a home remodel estimate. Out of those 20 appointments, they convert 25% to 5 sales, or new customers. Therefore the customer acquisition cost (CAC) equals $1000 ($5000 of the leads  5 sales).

The actual performance can be taken a final step further by understanding the cost as percent of sales or revenue. If we look back at the beginning of the process, the Home Remodeler spent $5000 to get 100 leads. Out of those 100 leads, 5 turned into a sale. If the Home Remodeler generates an average of $10,000 per sale, then those 5 customers they received contributed to $50,000 in revenue. Therefore, their true cost of sale is 10% of revenue ($50,000 in revenue  $5,000 cost to get the leads). 

Every business has to consider these steps in their unique funnel, but how well do they measure each of them? CPL and CAC are equally important, and those evaluating the marketing and sales process need to understand them well.

Maximizing marketing budgets

Experienced marketers within any industry have clear sales funnels within their business where CPL and CAC are measured both by channel and by source. One lead could cost $50, but result in 10% cost of sale. Another lead could cost $100, and while twice the initial rate, could result in a lower CAC and cost of sale. Finding the sweet spot in these sales funnels can be tricky, so it takes an expert to make it work.

Generating leads in-house can bring an overwhelming amount of unforeseen and associated costs.

The cost of the website, the experts you’d need to hire, the tools for acquiring and bidding for the right consumer traffic online, the cost for continuous optimization of the landing pages - the list goes on. The chances that a company can do this in-house more effectively than buying the leads from external companies with lead generation as their primary focus is quite low. Choosing to move lead generation in-house would be similar to a scenario where,  instead of paying a fee to advertise in a newspaper, choosing to publish the paper yourself so you don’t have to pay for the ad space. It’s worth it to outsource your lead generation to get the quality leads your business wants. 

The Buyerlink way

Buyerlink is the leading performance based marketing company with a particular focus in the generation of online leads, as well as Enhanced Clicks™ and calls. By partnering with Buyerlink, businesses can get access to the leads and scale their business efficiently, without having to take the time to learn anything about online marketing or investing in the costly infrastructure of an in-house process. 

Buyerlinks auction-based pricing allows the advertiser to decide how much they can afford to pay for a lead, and as a result, control their profit margins. Buyerlink’s access to a massive level of consumer demand across many verticals allows our platform to conduct millions of auctions monthly, connecting consumer demand to perfectly matched service providers. 

Our partners pay only for qualified leads, and can start receiving leads within minutes of joining the platform. The hard part is taken care of, and brands can focus on what they do best - selling.