The B2B Cost per Lead Formula and Your Marketing
Every senior marketer has been required at least once a year to sit through and beg for a bigger budget. You could very well be sitting in your superior's office, wracking your brain over just how you can get more funds. One of the potential reasons you haven't done so just yet is probably because you haven't shown them the ROI of prior campaigns or you just aren't tracking the right metrics. Thankfully, just recognizing that there's a problem already puts you well ahead of the game. Out of a list of more than 3,400 marketers surveyed by HubSpot, only 35% considered understanding campaign ROI to be "very important" or "extremely important."
It is also beyond important to monitor ROI. Marketing departments that measure ROI are more than twice as likely to have increased budgets for campaigns. The first such metric to master is Cost Per Lead. Knowing your CPL helps you gauge if you are overspending to attain customers and what the averages are within the industry. Now let's break down how to get value from the CPL formula, keeping you out of the red.
What is the Cost Per Lead?
Cost Per Lead is the sum of money spent to acquire one lead. There are two major components which constitute the overall cost:
1. Marketing and Advertising Spend: The dollars spent on ads or other marketing campaigns.
2. Employee Salaries and Outsourced Labor: The cost of salaries along with any outsourcing expenses.
To marketing directors on strict budgets, CPL gives them a clear goal to work toward when spending for leads. And it helps identify if you're over-investing or under-investing in some audience segments or marketing channels. Before its uses are explained, let's take a glimpse at the formulas of CPL.
Cost Per Lead Formulas
1. Collateral-Only Formula:
This formula cooks up CPL by dividing your marketing and advertising spending by the total number of new leads. It is expressed as
CPL = (marketing+ ad spend) / (new leads)
2. Collateral + Labor Formula:
You could go a step further to capture the overall value by considering the salaries and outsourced work costs. The formula for that would be:
CPL = ⁄ Marketing + Ad Spend + Labor New Leads ]
Example Calculation
Assume your digital marketing agency spends $2,000 monthly on LinkedIn Ads to source B2B customers. Let's say you get an average of 20 leads from these ads.
Applying the Collateral-Only Formula:
CPL = 2,000 ⁄ 20 = $100 per lead
Industry averages are very often based on this formula, but to get a more accurate form for planning, you have to consider the cost of labor. Assuming that $12,000 of your monthly expenses goes to salaries, consultants, or agencies, then the calculation would be:
This is an astounding 600% increase per lead when labor costs are factored in. Without calculating the cost of labor, using industry averages can lead to fraudulent information; the Collateral + Labor formula must be used to get a true picture.
Using CPL to Avoid Overspending
A case study by Hanapin Marketing illustrates the power of knowing CPL. Hanapin's client, a data security company, wanted to sell a card game to IT professionals using Facebook ads. To begin with, the CPL was very high, at $12.75.
To bring this cost down, here's what was done by Hanapin:
1. Segmentation: It segmented IT managers, technical engineers, and SysAdmin workers out of the general category targeting "information technology".
2. Finding Less Competitive Audiences: Segmentation aided Hanapin in finding less competitive audiences, hence reducing the ad cost.
3. Monitoring Engagement: Soon, they discovered that engineers were the most responsive, and they started shifting more budget toward them. Hanapin was able to decrease CPL by 75% to $3.20. This strategic adjustment illustrates exactly how insights that come out of the CPL calculation can result in more cost-effective marketing strategies with better ROI.
Average Cost Per Lead by Industry and Channel
If your business serves different industries or targets certain niches, it's wise to keep the CPL data in a spreadsheet. Because the B2B sales cycle is longer, you will most likely have to involve various levels of employees and use more varied marketing channels. Here's a look at the average CPL by industry and marketing channel:
B2B Industry CPL:
Marketing Agencies: $22 Low, $99 Average, $173 High
Business Services: $39 Low, $132 Average, $225 High
IT, Computer, and Technical Services: $39 Low, $208 Average, $370 High
Financial Services: $44 Low, $160 Average, $272 High
B2B Marketing Channels CPL:
LinkedIn Advertising: $51 Low, $75 Average, $140 High
Content Marketing: $43 Low, $92 Average, $132 High
Video Marketing: $59 Low, $174 Average, $288 High
SEO: $14 Low, $31 Average, $47 High
Conclusion
CPL helps you better understand your marketing spend and informs your decisions around which channels to allocate precious budget. Understanding CPL and the resulting ROI of the customer will arm you when you go to bat for a bigger budget, showing that you're using the budget wisely. These metrics will not only strengthen your strategic game but also give you more confidence in arguing with senior management.
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