What is pay per lead?

Pay per lead (PPL) is a pricing model where businesses are charged a fixed amount for each lead they acquire. This model is commonly used in lead generation campaigns where advertisers are billed based on the number of leads generated, regardless of whether those leads convert into customers. It allows companies to manage their budget effectively while focusing on acquiring new leads.

Beyond CPL: Why Cost Per Lead Alone Isn’t Enough

When looking for the best ways to generate leads and boost sales, Cost Per Lead (CPL) is often the first metric you would consider. It’s a popular and simple choice in the data-driven marketing world.

But here’s the catch – if you focus solely on CPL, you might miss out on better opportunities and end up with less effective results. Don’t let a simple number overshadow the bigger picture of lead quality and overall success.

Consider this scenario: a tech startup that chose a lead generation vendor with a low CPL of $30, thinking it was a great deal. Unfortunately, the leads were of low quality and converted at just 2%, leading to poor sales and wasted funds. In contrast, another startup chose a vendor with a higher CPL of $120. The leads were highly targeted and converted at 15%, resulting in significant revenue growth. This example shows that focusing only on CPL can overlook the critical value of lead quality and overall ROI.

Let’s explore why focusing on lead quality matters more than just the cost and why you should consider a range of factors when choosing the right lead generation agency. We’ll also cover the basics of what CPL is, how it’s calculated, and why it’s a popular metric.

Understanding Cost Per Lead (CPL)

Cost Per Lead Definition

CPL measures the cost you incur to acquire a single lead – a potential customer who shows interest in your product or service by providing their contact information.

This might involve offering content, a free trial, or a demo. CPL helps you gauge the effectiveness of your campaigns, ensuring your investment translates into genuine interest from potential customers. Essentially, CPL is the price tag on attracting a prospective client.

How CPL is Commonly Calculated

Calculating CPL is straightforward. Start by adding up all the costs of a marketing campaign, including online ads, email campaigns, social media promotions, and other channels. Then, divide this total cost by the number of leads generated.

For example, if you spend $5,000 and generate 250 leads, your CPL is $20. This calculation provides crucial insights into your campaign’s performance, helping you optimize your marketing budget and focus on the most cost-effective strategies.

Why CPL is a Popular Metric

CPL is popular because it gives a clear, quantifiable measure of marketing efficiency. Unlike broader metrics like impressions or clicks, CPL directly relates to acquiring potential customers, making it more actionable. It allows you to assess how well your campaigns are performing by connecting costs to outcomes.

Moreover, CPL works across various marketing channels, allowing you to compare different strategies and make informed decisions. In a data-driven world, CPL is a trusted lead gen metric that guides you toward more efficient and effective campaigns.

Why CPL Alone Isn’t Enough When Choosing a Vendor

Reason 1: Lead Quality Over Cost

Many businesses cling to Cost Per Lead (CPL) as their guiding metric, fixating on how much they’re paying for each potential customer. But this focus on cost can be misleading. The reality is that high-quality leads, even if they come at a higher CPL, can yield a much greater return on investment (ROI).

While CPL provides valuable insights into the cost efficiency of a lead generation campaign, it does not account for the quality of the leads.

If a high-quality lead converts into a deal with a significant profit margin, the initial CPL becomes a minor detail in the grand scheme of things.

Consider a scenario where you’re spending $3,000 per lead. At first glance, this figure might seem exorbitant, but if those leads convert into high-value clients, the investment can be well worth it. Let’s say each lead you acquire eventually brings in a $50,000 deal. Even with a $3,000 CPL, your ROI is substantial. The key here is the quality of the lead, not just the price tag.

Lead quality plays a crucial role in determining the true value of a lead. A high-quality lead is one that fits your target profile and is more likely to convert into a paying customer. This isn’t just about the immediate cost – it’s about the long-term value that lead can bring.

The relationship between lead quality, average deal size, and competitive positioning is pivotal. High-quality leads typically correlate with larger deal sizes and better market positioning. When you attract leads that are more aligned with your ideal customer profile, you not only increase your chances of closing deals but also enhance your standing against competitors. This alignment can lead to a more effective sales process and better overall performance.

Moreover, high-quality leads often come from a vendor’s deep understanding of your target audience and their ability to engage potential customers who are genuinely interested and ready to buy.

Reason 2: Comparing Different Lead Generation Channels

Lead generation is not a one-size-fits-all endeavor, and choosing the right strategy can feel like navigating a maze of options. You have outbound campaigns, paid advertising, and referral channels, each with its own pros and cons. However, comparing CPL across these channels alone can be misleading. Why?

Outbound campaigns involve reaching out directly to potential leads through cold calls, emails, or direct mail. While this method might seem more expensive than paid advertising or referrals, the higher CPL doesn’t tell the whole story.

Paid advertising often appears more efficient with its targeted reach and measurable results. Similarly, referral channels, where current customers or partners bring in new leads, seem cost-effective. However, outbound campaigns offer benefits that go beyond just the cost per lead.

One major advantage of outbound campaigns is their broad exposure. When you run an outbound campaign, you’re not only paying for leads but also for the opportunity to showcase your brand to thousands of potential decision-makers. This increased visibility can greatly enhance your brand’s recognition and industry presence. Even if the CPL is higher, the extra exposure and the chance to establish yourself as a market leader are worth it.

Comparing CPL across different channels often misses these broader benefits. Outbound campaigns might have a higher initial cost, but they provide long-term advantages that other channels may not. The brand awareness and trust built through outbound efforts can lead to higher-quality leads and more significant deals.

While CPL is an important metric, it shouldn’t be the only factor in choosing your lead generation strategy. Outbound campaigns, despite their higher costs, can offer valuable exposure and benefits that paid advertising and referral channels might not match. Consider the overall value each channel brings to your business, not just the cost per lead.

The Bigger Picture

When you’re selecting a lead generation vendor, it’s crucial to take a step back and view the situation from a broader perspective. It’s easy to get caught up in individual metrics, but focusing on just one aspect can lead to missed opportunities. To make a well-informed choice, you need to consider multiple factors that influence your overall success.

Lead quality is a key factor. Lead generation companies that provides high-quality leads – those that are more likely to convert into customers – can offer far more value than one that simply delivers a high volume of lower-quality leads.
Alongside lead quality, conversion rates are essential. You want to know how effectively the leads provided by the vendor are turning into paying customers.
Average deal size is another important consideration. Sometimes, spending a bit more on higher-quality leads can result in larger deals and higher revenue, making it a worthwhile investment. Brand exposure is also significant; a vendor that helps increase your visibility in the market can create long-term benefits beyond immediate sales.
Lastly, assess the overall ROI. It’s not just about the cost per lead but about the return you get from your investment. Evaluating a lead generation vendor holistically involves weighing all these factors together to get a complete picture of their impact on your business.

To get a full picture when evaluating a lead generation agency, you should:

Assess lead quality by analyzing conversion rates and average deal size.
Evaluate the vendor’s ability to target the right audience effectively.
Consider the overall ROI, including the lifetime value of customers.
Factor in hidden benefits such as brand exposure and market positioning.
Review case studies or testimonials from other successful clients.

💡Want to evaluate the top lead generation agencies worldwide? Check out our comprehensive comparison guide.

Consider the example of a B2B company that chose a lead generation vendor with a high CPL of $300. Initially, the high cost raised concerns, but the leads turned out to be highly targeted, converting at a rate of 25%. This led to a 40% increase in sales and a substantial return on investment.

In contrast, another company fixated on CPL and selected a vendor with a low cost of $50 per lead. While the lower CPL seemed attractive, the leads were of poor quality and converted at only 5%, leading to limited growth in sales.

So, what did we learn?

Sometimes, paying a higher CPL is worth it if it means getting high-quality, targeted leads. In this case, spending more on each lead resulted in better conversions and a big boost in sales.
Just chasing a low CPL can backfire. The cheap leads didn’t convert well, proving that lead quality is far more important than just the cost per lead.
Instead of fixating on CPL alone, think about the return on investment. The higher CPL vendor ended up providing a much better ROI with higher conversions and sales.
High-quality leads can bring long-term advantages like increased customer lifetime value and a stronger market presence. On the other hand, poor-quality leads can waste your marketing budget and deliver disappointing results.

The Real Takeaway? Choose Quality Over Low Cost

Evaluating lead generation companies based solely on Cost Per Lead is a limited approach that can hold back your company’s growth and success. While it might seem tempting to choose the vendor with the lowest CPL to cut expenses, this strategy often overlooks crucial factors that contribute to the overall effectiveness of your marketing efforts.

To make smarter decisions, broaden your evaluation criteria beyond just CPL. Consider lead quality, conversion rates, average deal size, brand exposure, and ROI. While high-quality leads might have a higher upfront cost, they often lead to better conversion rates and greater revenue.

By focusing on the overall benefits rather than immediate costs, you’ll support long-term growth and stronger market positioning. Quality leads not only boost sales but also build a more engaged and loyal customer base.

As you navigate the complex world of lead generation, remember to step back and evaluate vendors holistically. Prioritize quality and long-term success over short-term cost savings. This approach will help you unlock the full potential of your marketing efforts and achieve sustainable growth.

If you are ready to dive deeper into the benefits of hiring a lead generation agency, schedule a call with a Martal sales expert today!

FAQs: Cost Per Lead

How can I lower the cost per lead?

To lower your cost per lead (CPL), focus on refining your audience to reach the most relevant prospects and creating high-quality, compelling ads that engage them effectively. Continuously test various strategies and channels to find the most cost-effective methods, and leverage marketing automation tools to streamline the lead generation process. Additionally, enhance conversion rates by optimizing landing pages and calls-to-action, which can help reduce CPL overall.

What is profit per lead?

Profit per lead is a metric that measures the profitability of each lead generated. It is calculated by subtracting the cost associated with acquiring the lead from the revenue generated by converting that lead into a paying customer. The formula is:

Profit Per Lead=Revenue Per Lead−Cost Per Lead

This metric helps businesses understand the financial return on their lead generation efforts and determine the overall effectiveness of their marketing strategies.

📖Read our full guide on lead generation KPIs to gain a deeper understanding of how you can evaluate your overall lead gen performance