What CPL Is and How to Calculate It
In this article, we discuss what CPL is and an advertising model based on it. Learn how to calculate the cost of an attracted lead and which businesses must do this.
To assess the efficiency of marketing campaigns, marketers use various metrics. Some are focused exclusively on expenses, others on revenue, and others on the return on marketing investment (ROI) — the ratio of revenue to expenses.
In this article, we discuss cost per lead (CPL) — one of the most useful and interesting performance indicators — and an advertising model based on it. Let’s take a look at how to calculate the cost of an attracted lead and see which businesses should do so.
What is the definition of CPL?
The definition of CPL is a metric used to assess the efficiency of online marketing. It shows how much an advertiser pays to attract one lead on a particular advertising channel.
A lead is a user who has provided contact information. They might give a phone number, email, or social media profile during registration, fill out a form on a site, order a call back, download useful materials, etc. This information can be used to contact the user and sell goods or services.
How to calculate CPL
CPL shows the ratio of expenses for a specific channel to the total number of leads this channel has brought over a specific period.
The formula for calculating the cost of a lead is the following:
For example, say you spent $1000 on an advertising campaign in Google Ads. The campaign brought 700 leads to the site. In this case, the lead cost is $1000 / 750 leads = $1.33 per lead.
Knowing the CPL, you can evaluate the effectiveness of this campaign and make adjustments in time: increase the budget if the campaign is profitable or turn off impressions if it’s unprofitable.
To calculate the cost of a lead:
- Set up goals in Google Analytics and enable Enhanced Ecommerce.
- Import costs from advertising sources into Google Analytics.
- Include call tracking data if you use feedback calls on your site.
What is the CPL model?
CPL is an affiliate marketing model where an advertiser pays for a person’s contact information. Unlike with the CPA model, with CPL, the business gets a user who has not just performed the target action but is potentially interested in buying.
There are two types of CPL ads: single opt-in and double opt-in.
SOI (single opt-in)
For the purposes of SOI CPL ads, a lead is any user who leaves contact information — in other words, any user who performs one action.
Main characteristics of the SOI model:
- TAds usually have multiple transitions and high conversion rates.
- You can test variations of your ads, headlines, landing pages, etc. across different audiences, even with a limited budget.
- Attracted leads can be of low quality. For example, a user may enter an incorrect email address or phone number. As a result, it won’t be possible to contact them.
- Due to unpredictable results and the risk of getting low-quality leads, payouts for this affiliate advertising model are usually low.
DOI (double opt-in)
With this model, a user has to perform two actions to be considered a lead: leave their contact information and confirm it by clicking on a link in an email, for example.
Main characteristics of the DOI model:
- Leads that advertisers receive using this model are of better quality than those received using SOI. A DOI lead is more likely to answer a callback or email and make a purchase.
- Higher-quality leads mean higher payouts.
Who needs the CPL model?
The CPL model is most often used by B2B projects, companies with a long sales cycle and expensive goods (real estate, cars, large electronics and household appliances, etc.), as well as companies in the service sector. This model is relevant for all businesses that need to get contact information for further work with a potential client or to complete the transaction.
In which verticals is the CPL model used?
A vertical in traffic arbitrage means product categories, traffic sources, ad creatives, methods, and approaches used to promote products and services.
The CPL model is especially relevant for the following verticals:
- Banking and finance. Lead generation in this vertical is more difficult than lead generation in other ones, and for this reason, its cost is higher than in other verticals.
- Beauty and health. When a user orders a spa procedure, for instance, they usually want to clarify the time, cost, and other details, so they willingly leave contact information.
- Sweepstakes. To participate in raffles from online stores, online schools, and other organizations, a user often needs to give a phone number or email.
- Dating apps and websites.
What is the optimal CPL? By itself, this figure won’t explain anything to you. You should consider it along with other metrics: ad CTR, CPC, average check size, conversion rate, LTV (customer lifetime value), etc.
In addition, advertising campaigns with a large number of leads and low CPL may not bring the desired result if you have issues on the site: low-quality content, broken forms, and various kinds of errors. Therefore, before launching CPL ads, test your landing pages, check titles, texts, illustrations, buttons, and forms, and make sure everything works correctly.