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Joaquin Lopez

What Should My Cost Per Lead Be?

1st Dec 2020 Analytics 5 minutes to read

Cost Per LeadThis is a common question that pops up regularly on forums, groups and clients. The standard response that people will receive is “it depends on the industry you’re in” – but there’s much more to it than that, especially if you’re actively using multiple platforms like Google Ads and Facebook Advertising.

Indeed, the industry you operate within will have an impact on the amount you should expect to pay for a new business lead; however, the direct reasons for the determination of a cost per lead are much more granular. The cost of a business lead can depend on:

  • Your Target Market
  • Client/Customer Value
  • Competition
  • Lead Source

Target Market

The size and breadth of your target market should be an important factor to help you determine how much you should be paying for an average lead. If, for example, your target market is very limited and small, you should expect your cost per lead to be higher because your prospective customers or clients carry more exclusivity in the sense that they are hard to come by and therefore valued more highly.

 

Working out the value of a market can be very complex, which is why it can often be easier to segment your target markets by carrying out market research before you implement any marketing campaigns. This is particularly important if you are going to be carrying out the campaigns in-house, using complex sources with various channels. Segmenting your target markets by prospective value is a good place to start. We recommend including as many variations as possible, whether this is based on personas, interests, behaviours, or demographics. To go one further, if advertising on Facebook, we highly recommend checking the audience overlap between your audiences to reduce competing/bidding against your own ads, thus bringing the cost down.

 

Client/Customer Value

The value of your prospects is important when working out the value of your target market. It’s also important if you are using a more direct lead source, such as purchasing leads from a lead generation company, on a cost-per-lead basis.

 

The breadth of your target market – in other words, the mix of high, medium and low value prospects – is likely to have a bearing on your cost per lead too. Having a very small, segmented target market may well carry a high cost per lead, but if – for example – the market is 80% low value, 15% medium value and 5% high value in terms of prospects, you should ideally be paying less than if your small target market contains only high-value prospects.

 

Competition

Another aspect to bear in mind is the fact that your competition may also be targeting the same market as you. Whatever you do, don’t get into a bidding war with your competitors because it will simply saturate the market by pushing the lead cost up so high that it becomes unprofitable. Find other ways to tackle targeting, perhaps by using similar interests or using creatives that go against the grain of the industry-standard stereotypes. Blend this with different interests to find the perfect match.

 

Lead Source

Your optimal cost per leads will also depend on the platform you are using to generate leads. For example, if you’re using PPC it will cost a certain amount, if you use Facebook advertising you can set cost or bid caps to aim for a particular cost, though this depends on the industry and targeting, but the cost per lead will differ if you used telemarketing or email marketing – even more so if you buy leads from a lead generation company.

 

Work out what you can afford to pay for each lead based on your client conversion rate and the average value of a client. Then look at your options:

  • PPC (Pay Per Click) Google Ads/Facebook Ads
  • Email Marketing
  • Telemarketing
  • Buying leads from lead generation sites
  • IP tracking software e.g. WOW Analytics

Even if you’ve had experience in using certain lead sources in the past, don’t rule them out from fear of them being too expensive – you may be surprised at the value you can get from well-established and experienced agencies. It’s always a good idea to test new methods if some aren’t working.

 

Make sure to eliminate the channels are that too expensive to make a decent return on investment. Work out if you can do any of the work in-house to save the pennies where possible – but be careful on what take on, it’s not wise to attempt PPC Google Ads or Facebook ads if you have no experience or haven’t done the research. It’s incredibly easy to waste money on paid media if you don’t know what you’re doing. Your time is valuable, so if you have other important things to be doing make sure you use the expertise of other professionals.

 

In A Nutshell

Here are some quick tips for working out whether your cost per lead is “good” or not:

Take into account lead time (i.e. how long it takes for a lead to convert into a client or customer), because converting a lead after 6 months of its generation is just the same as converting a lead after 2 months. Going back to advertising, segment these out and use retargeting as a method to demonstrate your business or services’ strengths.

Test different lead sources and find the best fit for you – both long-term and short-term. Sometimes it’s easy to just go with a quick win; converting lots of low-value leads with a poor profit margin can make you feel dangerously comfortable. Don’t be afraid to pay a premium and wait for a longer time for high-value lead conversions, and remember that if you’re not paying for them, someone else will.

Don’t give up on a campaign purely because you’re not making as much immediate profit as you would like. Advertising is the key to success, and whether you or a professional is managing your sources, you will always have control; “An advertiser who stops advertising to save money is like a man who stops the clock to save time”.

To find out more about how you can generate leads cost-effectively, contact Koozai today.

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Joaquin Lopez

Senior Paid Media Executive

A sci-fi movie buff, gamer, lover of dystopian fiction and self-taught bassist, we’ve concluded that Joaquin has quite the creative streak. A recent trip to Japan unearthed a love for ramen noodles, so we now know what to bribe him with! Fun fact: originally from Chile, Joaquin’s surname means ‘son of wolf’.

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