At least once a year, every senior marketer finds themselves staring at the belly of the beast. You know—walking into your superior’s office and making the pitch for a bigger budget. And you might suspect a reason you haven’t gotten the green light yet: you haven’t proved ROI on your past marketing campaigns, or you didn’t monitor the correct metrics at all. At least knowing this puts you ahead of others—HubSpot recently interviewed over 3,400 marketers and found that “only 35% think understanding the ROI of their campaigns is ‘very important’ or ‘extremely important.’”
It’s hard to overstate the importance of tracking your ROI; in fact, marketing departments who compute their ROI are almost twice as likely to be awarded higher budgets for their campaigns.
The first metric to master is your cost per lead (CPL). You’ll want to know if you’re overspending on customers and what the industry average is. We’ll go over how to use the cost per lead formula so you don’t fall in the red.
What is cost per lead?
Cost per lead is the total amount you spend to generate a single lead.
Two things factor into the total cost:
- Marketing & advertising spend
- Employee salary and outsourced labor
Marketing directors know what it’s like to watch every dollar when working with a tight budget. This metric gives your team a clear spending target for bringing in a given number of leads. It also helps you spot specific audience segments or marketing channels you may be spending too much or too little on. But let’s not get ahead of ourselves; first, we need to quickly review the cost per lead formula.
The cost per lead formula(s)
A quick cost per lead formula just divides your marketing & ad spend, or collateral, by the total number of new leads. We’ll call this the collateral-only formula:
- CPL = (marketing+ ad spend) / (new leads)
For a more nuanced analysis, you can add in the costs of salaries or outsourced work. We’ll call this the collateral + labor formula:
- CPL = (marketing + ad spend) + ( labor) / (new leads)
Let’s say your digital marketing agency spends $2,000 a month running LinkedIn ads to bring in B2B clients. You track visitors from that ad on your lead capture form and find that an average of 20 leads sign up.
$2,000 / 20
= $100 per lead
Industry averages found online typically use this formula. But for your planning, you’ll want to factor in labor costs. Say you spend $12,000 per month on salaries, consultants or agencies; plug in the numbers and you get:
Collateral + labor formula:
$2,000 + $12,000 / 20
= $700 per new lead
That’s a 600% difference per lead. If someone on your team looks up the industry average CPL and starts spending money according to those metrics, they’ll be in for an unpleasant surprise. Consider calculating your cost per lead using ( collateral + labor ) to account for direct labor costs as well as any outsourced work.
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Use the CPL formula to stop overspending
Hanapin Marketing, a digital marketing agency wrote this case study perfectly illustrating how knowing the b2b cost per lead formula can literally make or break your marketing campaign.
Hanapin’s client was in data security and wanted to sell a card game (à la Cards Against Humanity) to IT professionals through Facebook ads. There was only one problem—the cost per lead was way too high at $12.75.
In order to reduce their client’s CPL, Hanapin resurrected the campaign by:
1. Segmenting: There are infinite careers that fall into “information technology”; to narrow it down, Hanapin segmented the audience into IT managers, technical engineers, and SysAdmin workers.
2. Finding cheaper audiences: With segmentation accomplished, the agency was able to find prospects that were a bargain since there’s less ad competition for their group.
3. Monitoring engagement: Hanapin found that engineers were the most responsive to the ads, and decided to pour most of the budget into that group.
Hanapin’s marketing team lowered the cost per lead by 75% to $3.20!
Using the insights from the b2b cost per lead formula helped the agency discover more affordable prospects, learn where exactly to put money, and stop wasting resources on prospects with poor ROI.
Average cost per lead by b2b industry and marketing channel
If you have customers in several industries or advertise to micro-market segments, organizing cost per leads in a spreadsheet is smart. And since the B2B sales cycle is usually longer, you may have to target both upper and low-level employees using several marketing channels.
Here’s a breakdown of cost per lead by popular B2B industries and marketing channels.
|IT, computer, and technical services||$39||$208||$370|
|B2B Marketing Channels||Low||Average||High|
(Sources from Survey America, Hubspot, Marketing Charts, MatchCraft, Prospect Marketing, Pulse Local Marketing).
The next important metric to measure
The cost per lead calculation gives you insight on where to spend money, meaning when it comes time for your pitch to senior management, you can better articulate which audiences or channels need funding and the expected costs.
It may be tough to impress the boss, but getting CPL and ROI down to a science will give you confidence when negotiating a budget.