- 1 When higher cost per lead is a good thing
- 1.1 What does CPL stand for?
- 1.2 How do you calculate cost per lead?
- 1.3 Is cost per lead the same as Google Ads’ Cost per Conversion?
- 1.4 What is a good cost per lead?
- 1.5 What’s the difference between CPL and CAC?
- 1.6 Why isn’t lower CPL always better?
- 1.7 Does deliberately increasing my cost per lead always improve lead quality?
- 1.8 Can you spend a few minutes explaining this stuff to me one on one?
I posted on LinkedIn about my experience in the last few weeks with a Google Search Ads client where I had managed to nearly triple the cost per lead and why that was in fact great news. I’ll go into it in more detail, but first, here’s the original post:
When higher cost per lead is a good thing
I’m doing a Google Ads pilot for a B2B SaaS client and I am thrilled to have nearly tripled the cost per lead over the last 2 weeks. You read that right.
You know why?
Because at the same time that cost per lead has tripled, lead quality has improved 20 fold.
😵 I know, those are some wild swings.
Here’s the difference that makes:
👉 Before, you have $40 leads who convert into a qualified lead once out of every 40 times
❌$1600 per qualified conversion
👉After, you have $120 leads who convert into a qualified lead every other time
✔ $240 per qualified conversion.
If you’re a company running Google Ads, try as much as possible to follow the numbers all the way into the income statement.
Having said that, we’re still a long way away from that and I know this isn’t the end of the story.
More to come.https://www.linkedin.com/posts/aldwin_googleads-activity-7158489211635912704-Pxrq/
I originally posted this article on LinkedIn. It’s worth going there just for the comments by the way. We got a good little conversation started with some insights shared about the importance of seeing the metrics all the way through to your company’s ultimate business goals.
Based on some of the conversations that post started, here’s a quick FAQ about when and why higher cost per lead can be not just a good thing, but can actually create more value for your business than a lower cost per lead.
What does CPL stand for?
CPL stands for Cost Per Lead. It’s a simple metric showing you how much each lead you generated cost you to generate it.
How do you calculate cost per lead?
You take the cost of getting all your leads, and divide by the number of leads.
For example if your campaign generated 10 leads, and the total ad cost was $300, then your cost per lead would be $300/10 = $30.
Is cost per lead the same as Google Ads’ Cost per Conversion?
No, not always, and this can trip a lot of people up and lead to double counting.
Cost per lead will only be the same as Cost per Conversion if you only have one conversion set up, and it’s mapped correctly to a lead generation event. For example, you’ve set up your conversions in Google Ads to count one conversion the first time somebody fills out your lead generation form on your site.
But let’s say you then take that lead and manually qualify them as a marketing qualified lead (MQL). E.g. maybe you look them up and if their company is above a certain size you decide they’re now an MQL. You can register that with Google Ads as an “offline conversion”.
In that case, you would still only have the one lead, but you would now have two conversions in Google Ads. The first is counted when the lead filled out your lead form (after clicking on your ad of course) and the second is counted when you uploaded the offline conversion to Google Ads.
What is a good cost per lead?
I’ll write a post about this soon. If I haven’t done it in a week or so remind me.
Basically, you have to figure out your costs, customer value, and conversion rates from lead to customer, then work backwards.
For example, if 1% of your leads become customers, that means you’ll need 100 leads to get one customer. And say it costs you $500 including ad costs to get each lead, then that customer better contribute 100x$500 = $50,000 to your business for the whole thing to break even.
Let’s say that is the average contribution of each customer to your business. In that case, $500 might be a good cost per lead for you.
I’m really over-simplifying here. I write the longer post soon.
What’s the difference between CPL and CAC?
CPL is cost per lead, which is the cost of acquiring one lead. CAC is customer acquisition cost, which is the cost of acquiring one customer. CAC will normally be a multiple of CPL.
Why isn’t lower CPL always better?
If you have two leads of equal quality, then the one that cost less is better.
But what you’re really after is customers. And if a lower Google cost per lead means lower quality leads, and that means a lower chance of getting a profitable customer, then lower isn’t better.
Another way to think of it is to decrease your cost per qualified lead or if you prefer, lower your cost per MQL (marketing qualified lead).
Does deliberately increasing my cost per lead always improve lead quality?
Not always. E.g. you can increase your cost per lead by bidding on keywords that get lots of clicks but never generate a lead. That will raise your campaign cost and your average cost per lead will go up as a result.
On the other hand, sometimes by signaling to Google Ads that you are willing to pay more for a lead, that can nudge the algorithm into putting you higher up in the SERP more often which may get you better quality leads.
This is debated. But read “Join or Die” by Patrick Gilbert for more on this and other ideas about advertising in the age of automation (hint: that’s the age we’re in).
Can you spend a few minutes explaining this stuff to me one on one?
If you’re really stuck and really frustrated with your lead generation campaigns, we can have a free 30 minute discovery call where we can take a look at a couple of your campaigns and see if it makes sense to set up a Google Ads coaching engagement.