When I was 13 years old I took it upon myself to start a snow removal business in my neighborhood. For the incredibly low price of $10 I would clean my neighbors’ driveways and the sidewalks that led up to their front doors. My parents had one of those fancy snowblowers, but they wanted me to learn the valuable lessons of manual labor (ugh) and insisted that I do the work “with a shovel”.
My mom drove me to Home Depot and bought me a shovel, gloves and a bag of salt.
I’m guessing the supplies cost around $25, and of course being the great son I am, I wanted to pay her back. I needed to start making a return on investment (ROI) not only so I could pay my mom back, but so I could make money for myself and blow it on video games and pogs (remember pogs?).
Fast forward 19 years and, as a Director at Brafton, I’m faced with very similar challenges.
Our clients have various goals, but a large percentage come to Brafton with the expectation that we are going to make their companies more money, plain and simple. KPIs like Cost-Per-Lead (CPL) and Cost-Per-Sale (CPS) are the most effective ways to show this type of ROI to our clients, and as digital marketers it’s our responsibility to cut through the noise and show them our work is paying off.
What is CPL?
Cost-Per-Lead is the amount of money spent in order to generate a qualified lead. Whether it’s a marketing-qualified lead (MQL) or sales-qualified lead (SQL), it’s the amount of money you had to spend to initiate a conversation with a prospect.
Measuring CPL takes the intangibles out of the equation. Instead of measuring “vanity metric” like keyword rankings and organic search traffic, you are forced to measure dollars in versus dollars out. Based on that information, you can make informed decisions about your strategy and its effectiveness.
What is CPS?
Cost-Per-Sale is the amount of money you spent that resulted in the business actually generating revenue. This type of KPI is more easily measured when working with e-commerce or paid search initiatives, but it’s often the most compelling type of metric you can offer when it comes to measuring ROI.
The line between an MQL or SQL and generating revenue is often dotted for various reasons (due to offline conversations between sales and the prospect, various other omnichannel activities, etc). However, when talking about CPS you can draw a direct line between a marketing initiative and the money that was generated by it.
How to calculate CPL/CPS
In order to calculate these metrics effectively, you need to ask the right questions, understand the percentage of web-based leads that close and what the average deal size of those closed leads are.
From there, it’s basic arithmetic to figure out the value of your lead:
Average deal size X % of deals closed = lead value.
Once you have that information, you can plug it directly into your analytics tool of choice. By doing so, you can do some deep dives into the data to understand more of the nuance surrounding your lead generation programs (acquisition sources, specific landing pages driving revenue, etc.)
Say for instance you spent $5,000 creating an eBook asset to use for a lead-generation program and you want to figure out the CPL and CPS from this asset. Let’s revisit our friend Mr. Basic Arithmetic:
For CPL, you want to divide the cost of the asset by the number of leads generated by it:
$5,000 eBook generated 100 qualified leads = $50 CPL
For CPS, you want to divide the cost of the asset by the number of sales generated by it:
$5,000 eBook generated 10 sales = $500 CPS
Now comes the good part.
Since you were such a good marketer and asked the right questions, you know the average deal size that you’re working with, and now you can compare your CPS to see if the asset was actually worth the investment.
Average deal size = $1,500. Your CPS = $500 for the eBook asset — you’re $1,000 in the black on every deal closed on this program.
Your ultimate goal of course should be to get your CPL as low as possible while maintaining the actual quality of the leads themselves. Let me repeat that last part again: while maintaining the actual quality of the leads themselves. Without quality leads there are no sales, and with no sales, there is no ROI.
I’m often asked the question, “What are most of your clients looking to get out of their digital marketing initiatives?” The answer is usually quite simple but often hidden behind an obsession with what I like to call “vanity metrics.”
No matter how much additional traffic we are able to drive to a site or how well we improve a domain’s visibility in search, none of it matters if we can’t bring home the bacon.
Understanding CPL and CPS analysis allows a marketer to show true ROI to clients, and that’s what makes a true partnership succeed or fail.
Just in case you were wondering, I shoveled enough driveways that winter to pay my mom back and buy Ape Escape.