How Much Does Lead Generation Cost?
In the following article, we will go through the definition of lead generation, learning how to calculate cost per lead (CPL), examining which type of costs need to be included in the calculation, learning what the average cost per lead is, studying which factors influence the total lead cost, seeing how many leads you need to hit your revenue goal, determining the best lead providers and their prices.
Did you know that the average spending on digital advertisement was over $77 billion by the end of 2018? That’s a huge amount of money! But what if you could know whether your money is well-spent or wasted?
Adding new customers within your sales funnel is crucial for sustainable growth. Therefore, you need to focus on the efforts which work to generate leads to avoid spending for nothing.
Before we move, initially, let’s see what lead generation means;
What is Lead Generation?
How many people have engaged with your business to decide on whether to make a purchase or not? This would be the number of your leads generated. Lead generation does not necessarily mean that there must be a conversion. Even a visitor coming to your website and not taking the desired action counts as a lead.
The vital thing to know here is that there are two types of leads because the terms of marketing and sales carry different characteristics within themselves:
Marketing Qualified Leads (MQLs) are the potential prospects that you were able to entice. Whereas Sales Qualified Leads (SQLs) are customers who have engaged with your business. (downloaded an e-book, purchased a product or made a reservation)
How to Calculate Cost per Lead (CPL)?
Cost per Lead or CPL is one of the most used metrics to evaluate the efficiency of a digital marketing campaign. And the formula of CPL is very straightforward:
Total Cost Spend on a Digital Marketing Program/ Number of Leads Coming From The Program
For instance, let’s say you have spent $1,000 on a pay-per-click (PPC) advertisement and 50 people were converted into leads.
Cost per Lead = $1,000 / 50 = $20.
Remember that generating leads is all about a high **return on investment of your customer acquisition.** The higher the ROI, the more costly a lead is; and the lower the ROI, the less likely you are to pay for obtaining leads.
On the other hand, the average cost per lead varies depending on your industry, lead generation channel, company size, and company revenue. Don’t worry; we will dig into them in a minute.
But first, I want to recommend you some CPL Calculator Tools to save you from doing this math alone;
Cost per Lead (CPL) Calculators
Types of Lead Generation Costs
Some costs occur during the lead generation process and need to be summed in the calculation, but not all are applicable to every channel for lead generation:
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Media Placement and Distribution: Cost of reaching the potential audience of a digital campaign.
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List Purchase: Cost of buying or renting a telemarketing list and a third-party address list for direct marketing. (Here, I want to remind you that purchasing an email list is not a good idea!)
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Agency and Labour: Cost of hiring an agency to manage some digital marketing processes like SEO.
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Campaign Creation: Cost of developing an effective digital marketing campaign.
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Incentive: Cost of immediate rewards like coupons or discounts to high-quality prospects before buying behavior.
- Other: Costs of managing a digital marketing campaign aside from the ones explained above.
Average Cost per Lead
On average, cost per lead is determined as $198 for 2020. However, CPL differs widely depending on the industry, the profundity of your target audience, and, of course, the competition among your sector.
Let’s dig deeper into these amounts and the cost influencing factors;
Average Cost per Lead by Industry
| Industry | Cost per Lead on Average |
|---|---|
| Finance | $ 160 |
| Technology | $ 208 |
| Healthcare | $ 162 |
| Manufacturing | $ 136 |
| Travel & Tourism | $ 106 |
| Retail | $ 34 |
| Education | $ 55 |
| Telecom | $ 45 |
| Marketing | $ 99 |
| Consumer Products | $ 105 |
| Media & Publishing | $ 108 |
| Non-Profits | $ 31 |
| Business Services | $ 132 |
Sources: Marketing Charts, Hubspot, Socedo, Survey Anyplace, Integrated Marketing Association
Average Cost per Lead by Lead Generation Channel
| Lead Generation Channel | Cost per Lead on Average |
|---|---|
| Events & Tradeshows | $ 811 |
| Public Relations | $ 294 |
| Referrals | $ 73 |
| Video Marketing | $ 174 |
| LinkedIn Advertising | $ 75 |
| Webinars | $ 72 |
| Display Advertising | $ 63 |
| Content Marketing | $ 92 |
| Traditional Marketing (TV, Radio, Print) |
$ 619 |
| Search Engine Advertising | $ 110 |
| Social Media Advertising | $ 58 |
| Search Engine Optimization | $ 31 |
| Email Marketing | $ 53 |
| Online Retargeting | $ 31 |
Sources: Marketing Charts, Hubspot, Socedo, Survey Anyplace, Integrated Marketing Association
Average Cost per Lead by Company Size
| Company Size | Cost per Lead on Average |
|---|---|
| 1001+ Employees | $ 349 |
| 201 – 1001 Employees | $ 212 |
| 51 – 200 Employees | $ 180 |
| 2 – 50 Employees | $ 47 |
Source: 1st on the List Promotion
Average Cost per Lead by Company Revenue
| Company Revenue | Cost per Lead on Average |
|---|---|
| $500 M + | $ 429 |
| $10 M – $500 M | $ 179 |
| $1 M – $10 M | $ 185 |
| < $1 M | $ 166 |
Source: 1st on the List Promotion
How Many Leads Do You Need?
As the main aim of a marketer is to maximize efficiency in campaigns, you must understand how many leads you need to hit the revenue goal of your business.
This analysis requires information about your company data elements like;
-
Targeted Revenue – The amount of revenue you aim to reach at the end of a period
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Marketing-Driven Revenue – The portion of total income that is acquired thanks to marketing efforts.
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Average Sales Price (ASP) – Net Sales / Number of Units Sold
-
Marketing-Driven Deals – Marketing Driven Revenue / Average Sales Price
-
Opportunity-to-Sale Ratio – How close you are to turn one lead into a customer out of the total number of leads. (%)
-
Qualified Lead-to-Opportunity Ratio – How many leads it takes to turn one lead into a customer. (%)
- Lead-to-Qualified-Lead Ratio – How much analysis is necessary to turn one lead into a converting customer.
Now, let’s evaluate one example together:
- Suppose you aim to reach a $100,000 in revenue by the end of the month.
- Your marketing-driven revenue is $45,000 at the end of the month.
- The average sales price is calculated at $5,000.
- Marketing Driven Deals: $45,000 / $5,000 = $9
- Opportunity to sales ratio is predicted as 3, which means you have the opportunity to turn one lead into a customer out of 3 leads.
- Number of Opportunities Needed: 3 x 9 = 27
- Qualified lead to opportunity ratio is foreseen as 6, which means you can turn one lead into a converting customer if you have at least 6 leads.
- Number of Leads Needed: 6 x 27 = 162
What you can deduce from this example is that you need to have at least 162 leads in order to obtain zero profit.
Rather than making calculations to know the lead break-even point for your digital campaign, some tools will provide you with the same information automatically;
Sales Lead Calculators
These tools will help you to determine how much engagement you need to convert qualified MQLs into SQLs leading to a boost in your sales. It is also good to know the necessary amount of leads before moving to plan your digital marketing efforts.
Lead Generation Service Providers
Another option to increase leads is to pay a third-party to generate leads for your business. In some cases, getting help from companies in the lead generation sector would be more effective than spending your money and time on obtaining leads by yourself. Especially if you are a small business with a small database of prospects, you may let someone else develop an extensive database for you while you focus on customer retention strategies within the company.
The problem with those companies is that they offer you a temporary solution. When you stop paying for obtaining leads, they will simultaneously stop generating leads for you. Therefore, you need to constitute an efficient plan to keep those leads and turn them into loyal customers.
No matter which path you choose, you should set clear objectives, start an accurate program for the job, and track your results to find the best strategy.
Here are some of the companies that may help you generate more leads, their services, and their prices are given;
| Company | Services | Pricing (Per Month) |
|---|---|---|
| Popupsmart | High converting popup builder, digital marketing tools |
Try for Free |
| LinkedIn Sales Navigator | Letting you search for leads and features |
$64,99 |
| Mailshake | Outbound email generation | $ 19 |
| Vyper | Creating contests, promotions and social media buzz generation |
$ 29 |
| Click Funnels | Building sales funnels and webpages | $ 97 |
| Callpage | Engaging the user to a phone call | $ 79 |
| Datanyze | Enabling you to search for leads based specific conditions |
$ 29 |
To sum up, if your overall value of a lead is more than your total lead cost, it means your lead generation program is a winning one!
I hope that this article was beneficial for you to take the right choices related to expenses on lead generation, lead generation marketing, and guided you to become a digital marketing hero in your workplace. If you have any questions or suggestions, please do not hesitate to communicate with me via the comments!
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