Calculating your cost per lead and cost per sale is an easy and effective way to determine if your marketing and advertising campaigns are effective. You want to generate new leads and increase the sales for your company without spending an exorbitant amount on your campaigns.
We’re going to go over the differences between the two types of metrics and why you should calculate them with every campaign you run.
What is Cost Per Lead?
Cost per lead helps you measure if your marketing campaigns are cost-effective and are successfully helping generate new leads. A lead is a customer that’s expressed interest in your service or product. The cost per lead metric gives you a dollar figure so you can determine how much money you’re spending on acquiring new leads and if you need to pivot your efforts. The number reflects the amount of money you’re spending per lead.
The higher the cost per lead is, the less effective the marketing or advertising campaign is. You don’t want to spend a lot of money to generate new leads.
How Do You Measure Cost Per Lead?
The calculation for calculating cost per lead is straightforward. Use the below formula:
Total Ad Campaign Spend / Total Attributed Leads = Cost Per Lead
Total ad campaign spend refers to the amount of money spent on a marketing or advertising campaign. Total attributed leads are the number of people that clicked on the ad and were directed to your website.
For example, if you got 150 leads through a Facebook Ad campaign that cost $1,500, the cost per lead for that campaign would be $10.
If you’re running an advertising campaign across multiple social media platforms and search engines, you want to know where each lead came from. Knowing if you received more leads from Facebook than you did Instagram will help you measure the campaign’s effectiveness across the various platforms.
How to Reduce Your Cost Per Lead
If your cost per lead is a bit high, there’s no need to worry. There are several ways you can reduce your cost per lead by adjusting your marketing and advertising campaigns.
1. Personalize Your Marketing and Advertising Campaigns
Ensure your ad messaging reflects what leads will find on your website or landing page. You want to meet the expectation that’s being set by the ad. When leads click through to your website, you should include a call to action toward the top. Leads should know exactly what to expect from your company and what you want them to do. If your website is too confusing or not user-friendly, the lead could potentially go back and find another website from the search results.
2. Evaluate the Keywords You’re Using
Within the copy of your ads, you’ll want to include relevant keywords that potential customers will be searching for. They should be tailored specifically to the product or services you offer and what people will be typing into the search bar. Throughout your campaign, head over to your ads manager to evaluate if the keywords are performing well. If they’re not driving leads, remove them and add in keywords that are more effective. It doesn’t matter if the keywords you delete are ones that typically rank high. If they’re not driving sales to your business, they’re not effective for you.
3. Conduct A/B Testing
The performance of your ads can be influenced by your copy, keywords, and images. You might want to get overly creative with an ad, but that doesn’t always equate to results. One way to test the effectiveness of that type of ad is to run two versions of your ad. You’ll be able to determine which types of elements connect the best with your leads. However, when you run A/B testing, the two ads shouldn’t be vastly different from one another. Tweak one aspect of the ad when you test them. That way, you’ll know which variable resonates more with your audience by seeing how each one performs. The ad with the lower cost per lead is the more effective one.
What is Cost Per Sale?
The cost per sale is a little different from the cost per lead. Another term for cost per sale is the cost per conversion. It’s the amount you spend for each sale or conversion that’s generated from an ad campaign. This metric shows you how much you’re spending to close on a sale, not just get a customer visiting your website. On the same note as cost per lead, you don’t want to overspend for cost per sale. You want your cost per sale to be as low as possible.
How Do You Calculate Cost Per Sale?
Use the below formula to calculate your cost per sale:
Total Ad Campaign Spend / Total Revenue from Sales = Cost Per Sale
By calculating this metric, you’re able to see an actual number that shows you how much money you spent to generate sales.
Why Are They Both Important?
By figuring out your cost per lead, your marketing and sales team can set their sales goals, determine budgets, and calculate the potential return on investment (ROI). Your company can make better decisions as you understand how much you’re spending per lead.
The best way to reduce your cost per sale is to lower the cost of your advertising campaign. After you figure out your cost per lead, you can use that information to tighten up your campaigns and make them more effective. As they become more effective, it’ll lower the amount of money you spend on your campaigns, thereby lowering your cost per sale. Both of these metrics work in tandem to reduce your advertising and marketing costs, increasing your total revenue.
Create More Effective Marketing and Advertising Campaigns
Understanding your customers and what resonates with them is vital to this process. Like we talked about earlier, constantly reviewing your campaigns and seeing what resonates with your customers is important. Your cost per lead and cost per sale show you if your marketing efforts give you a high ROI and if the campaigns are effective in generating leads and sales for your business. If the number is too high, it’s time to reevaluate your campaigns.
How have you used your cost per lead and cost per sale in your marketing campaigns? Drop a comment below!