What does it cost you to bring in new business?
This is the question that lies at the heart of cost-per-lead and cost-per-client analysis. If you’re managing your books well and tracking your leads and acquisitions, it’s not a difficult question to answer. It’s just a simple equation of dividing the cost of your marketing campaign by the amount of leads or new clients generated.
We’ll get to the details and give examples, but first, let’s get to the other question that begs to be asked: “Why does the cost-per-lead and cost-per-client matter?”
You, as a business, are trying to get maximum returns for your efforts, right? You’re trying to find the most successful and cost-effective methods to get the best ROI. How can you achieve this without a metric to measure your efforts by? Thus, you must keep track of your cost-per-lead and cost-per-client.
A lead is a person or organization with an interest in your product or service. They’re not converted yet, but they’re in your marketing net. To analyze your cost-per-lead (CPL), all you need to know is how much your marketing campaign(s) cost and how many leads you generated.
Ready for math class? The formula for the cost-per-lead is (not rocket science): the cost of your marketing campaign divided by the number of leads generated.
Let’s say, for example, that a company selling COVID-proof shoes runs a targeted ad on Instagram that cost $500. It generated 50 leads. Their CPL is $500 / 50. $10 per lead.
That’s it! Now you’re a mathematician and a business leader. Congratulations!
Cost-per-client (CPC) is known by a few different terms. Cost-per-acquisition (CPA), cost-per-customer (CPC), cost-per-sale (CPS) or cost of acquiring customer (CAC). They essentially all mean the same thing, it may just depend on your industry or school of business thought which one you are more familiar with.
The key difference here is that your lead has been converted and is now a customer or client. To calculate the CPC, it takes just a little more analysis but the equation is still the same. In simple cases, you can measure a single marketing campaign and just divide the number of clients generated. Most of the time, however, you’ll need to add up the cost of a series of advertising and marketing campaigns and then divide this by number of clients generated.
As an example for the CPC calculation, we’ll use a marketing firm as a model. This firm utilized five advertising methods – website, direct mail, Google Adwords, a newsletter and an SEO company – for a grand total of $2,500 in marketing costs.
From all of these advertising methods, they got 25 leads, but only 5 of those leads became new clients. The CPC or CPA would be $2,500 / 5, for an average cost of $500 per new client.
CPL and CPC are really this straightforward and easy to measure. It’s just a matter of keeping accurate financial books and tracking your leads and clients. Ya’ welcome! And thanks for reading.
Onward, ever onward, to more effective marketing!