Unraveling CPL in Google Ads: A Comprehensive Guide to Cost Per Lead

To assess the efficiency of marketing campaigns, marketers use various metrics. Approximately 65% of businesses consider generating leads their top marketing challenge. Some are focused exclusively on expenses, others on revenue, and others on the return on marketing investment (ROI) — the ratio of revenue to expenses.

Evaluating the customer acquisition cost (CAC) is crucial for understanding the effectiveness of these campaigns.

In this article, we discuss cost per lead (CPL) — one of the most useful and interesting performance indicators — and an advertising model based on it. Let’s take a look at how to calculate the cost of an attracted lead and see which businesses should do so.

Note: This post was written in 2020 and has been completely updated based on the recent updates in July 2024.

The meaning of CPL is a metric used to assess the efficiency of online marketing. It shows how much an advertiser pays to attract one lead on a particular advertising channel.

It is a critical measure for evaluating the cost-effectiveness of producing a lead, or a prospective customer, through various marketing strategies. Understanding CPL is essential for businesses to optimize their marketing strategies, aiming to reduce costs while increasing customer acquisition.

A Marketing Qualified Lead (MQL) is a prospective customer who has shown interest in a company's products or services and meets specific criteria set by the marketing team. Differentiating lead stages, including MQL, is crucial to optimize marketing spend and direct marketing efforts effectively.

CPL serves as an important Key Performance Indicator (KPI) to gauge the efficiency of marketing campaigns in terms of investment return. A lower CPL indicates a more effective marketing campaign, suggesting that the business is generating leads at a lower cost compared to its competitors. Conversely, a higher CPL points to less efficient marketing efforts.

Businesses calculate CPL as part of their lead generation or demand generation activities, breaking down the costs associated with each marketing channel, such as social media, email marketing, or advertising campaigns.

A lead refers to an individual or entity that expresses interest in a company’s products or services by providing contact information (like an email address, phone number, or social media profiles) in return for something of value, such as an offer, free trial, or more details about the product or service.

The definition of a lead can vary across different sectors and industries, but generally, a lead is someone who shows an interest in a company’s offerings but may not be ready to make a purchase immediately.

Cost Per Lead (CPL), Cost Per Acquisition (CPA), and Cost Per Click (CPC) are three fundamental metrics used in digital marketing to measure the efficiency and effectiveness of advertising campaigns, each with its distinct focus and method of calculation.

CPL measures the cost incurred to acquire a potential customer (lead) across all marketing channels. For example, a clothing company might analyze the overall expenses of its online marketing campaigns divided by the number of leads generated to find its CPL. The lead formula is used to calculate CPL by dividing the total marketing costs by the number of leads generated, helping businesses understand campaign costs and optimize their marketing efforts.

CPA, also known as cost-per-action or pay-per-performance, focuses on the cost associated with a specific action being completed, such as a sale or sign-up. This model means the advertiser pays only when a user not only clicks on an ad but also completes a desired action, making it a favorite in models like affiliate marketing.

CPC tracks the cost each time an advertisement is clicked, regardless of what happens after that click. This metric is widely used in display and paid search advertising, where the investment aims to generate clicks, with the cost calculated by dividing the total ad spend by the number of clicks received.

While CPL and CPA concentrate on generating leads and conversions, respectively, CPC focuses solely on the initial click, offering a more immediate but less conversion-focused perspective. Each of these metrics serves a different purpose, from gauging initial interest (CPC) and potential customer engagement (CPL) to measuring the cost-effectiveness of achieving a conversion (CPA). Understanding the nuances between these can help businesses allocate their marketing budgets more effectively.

Adopting a Cost-Per-Lead (CPL) advertising strategy offers businesses a focused and efficient approach to digital marketing. By directly linking advertising spend to lead acquisition, companies can optimize their budgets, tailor campaigns to target audiences, and significantly improve their return on investment (ROI).

1. High Conversion Rates: CPL marketing’s precision targeting ensures that your message reaches an audience primed for engagement, thus driving up the likelihood of converting interest into sales.
2. Cost-Effectiveness: This model directly ties marketing spend to tangible results, eliminating waste and maximizing the efficiency of your marketing budget.
3. Targeted Advertising: Leveraging detailed demographic insights allows for highly customized campaigns that resonate deeply with the intended audience, enhancing response rates.
4. Measurable Results: The clear metrics provided by CPL marketing simplify ROI analysis, offering transparent insight into the effectiveness of each campaign and the value of leads generated.
5. Strategy Optimization: Access to real-time data empowers marketers to refine and pivot their strategies dynamically, ensuring that campaigns are always aligned with business goals.
6. Quality Lead Generation: Focusing on pre-interested parties not only increases the chances of conversion but also streamlines the sales process, as leads are more informed and closer to making a purchase decision.
7. Business Growth: The acquisition of high-quality leads is a catalyst for business expansion, driving increased sales and fostering sustainable long-term growth.

CPL indicates the proportion of costs for a particular channel relative to the total number of leads generated by this channel over a given timeframe.

The marketing team plays a crucial role in setting specific criteria for prospective customers and tracking the effectiveness of CPL calculations.

The formula for calculating the cost of a lead is the following:

For example, say you spent $1000 on an advertising campaign in Google Ads. The campaign brought 700 leads to the site. In this case, the lead cost is $1000 / 750 leads = $1.33 per lead.

Knowing the CPL, you can evaluate the effectiveness of this campaign and make adjustments in time: increase the budget if the campaign is profitable or turn off impressions if it’s unprofitable.

To calculate the cost of a lead:

1. Set up goals in Google Analytics 4 and enable Enhanced Ecommerce.
2. Import costs from advertising sources into Google Analytics 4.
3. Include call tracking data if you use feedback calls on your site.

Revolve Design, a marketing firm, employs both inbound and outbound lead generation strategies to optimize its success rate. Initially, it engages in outbound marketing tactics such as cold-calling potential clients and advertising in selected publications. These methods yield immediate responses and a high volume of leads, albeit with a higher cost per lead due to the outbound strategies’ expensive nature.

Simultaneously, the firm invests in inbound marketing techniques, including creating compelling content, optimizing its website for search engines, and conducting social media campaigns. Although these inbound tactics take more time to produce leads, they are cost-effective in the long run and sustain lead generation over an extended period.

As these inbound initiatives start to show results, Revolve Design gradually scales back its outbound marketing efforts, leading to a decrease in the overall cost per lead. The sales team collaborates closely with the marketing team to optimize these lead-generation strategies, ensuring a seamless transition and effective tracking of cost per lead.

Over time, Revolve Design observed that their inbound marketing strategies are not only more cost-effective, but also yield a better cost per lead compared to outbound methods. Consequently, the company shifts its emphasis toward inbound strategies, enabling it to save on costs and build enduring relationships with potential customers who have shown interest in its services or products. This strategic pivot allows Revolve Design to more efficiently attract and engage leads, optimizing their marketing investment.

To simplify and automate CPL calculations, you can use OWOX BI. This service collects information from your website, Google Analytics 4, online advertising services, call tracking systems, email newsletters, and CRM systems. With OWOX BI, you don’t have to look for connectors or clean and process data. You simply receive ready-made datasets in a comprehensible and convenient structure.

There isn't a universal benchmark for the perfect cost per lead (CPL) that businesses can aim for to ensure the utmost efficiency in their marketing campaigns. The ideal CPL varies greatly depending on numerous factors, including your industry, the competitive environment, the audience you target, the size of your company, its annual income, your marketing budget, and the pricing of your products or services.

Additionally, the CPL can vary depending on the marketing channels utilized — for example, the cost of generating leads at trade shows will differ from that of leads acquired through email marketing.

Determining what constitutes a "good" CPL is more of an intuitive process. If you notice that the CPL for a particular channel is significantly higher than its conversion success, it may be time to reassess the viability of that strategy.

To enhance or gain a deeper understanding of your lead generation efforts, it's crucial to know how to calculate your CPL. This knowledge is a fundamental step towards conducting marketing campaigns that are streamlined, effective, and yield high returns. Recognizing and analyzing your CPL is often the first step in understanding whether your marketing efforts are on the right track.

Understanding the cost per lead (CPL) is crucial for optimizing advertising budgets and enhancing the efficiency of digital campaigns. Let's learn how to calculate CPL on two of the most popular platforms, Google Ads and Facebook Ads, providing insights into managing your marketing investments more effectively.

Calculating Cost Per Lead (CPL) in Google Ads is a critical process for understanding the efficiency of your advertising campaigns in generating new leads. Google Ads results receive 65% of the clicks that started with buying keywords, while organic results only receive 35%. To accurately calculate the Cost Per Lead (CPL) for your Google Ads campaigns, follow these essential steps:

Step 1: Identify the Total Campaign Cost: Determine the total expenditure on your Google Ads campaign over a specified timeframe, such as a month or a quarter. This total should encompass all costs associated with running the campaign.

Step 2: Count the Number of Leads: A lead refers to an individual who has expressed interest in your product or service by sharing their contact details, like name and email address. Tally up the leads specifically generated from the campaign.

Step 3: Calculate the CPL: Divide the total campaign cost by the total number of leads generated. The result is your Cost Per Lead for the Google Ads campaign. This figure represents the average expense of acquiring each lead through your advertising efforts on the platform.

To lower your cost per lead in Google Ads, consider these strategies:

1. Limited by Budget Campaigns: For campaigns marked as “limited by budget,” consider increasing the budget for high-value campaigns or lowering bids to participate in less expensive auctions, which may yield cheaper clicks but monitor conversion volume closely.
2. Improve Quality Score: Enhance your Quality Score by focusing on expected click-through rate, landing page experience, and ad relevance, which could lead to lower cost per click and, consequently, a lower overall CPL. A Sales Qualified Lead (SQL) is a prospect vetted through specific criteria, showing a strong likelihood of converting into a paying customer, and is crucial for optimizing CPL.
3. Account Structure Optimization: Refine your account structure with single-themed ad groups to improve relevancy, and thus Quality Score, and organize automated bidding strategies more effectively.
4. Bid and Target Adjustments: For manual/enhanced CPC campaigns, adjust your bids based on performance metrics like device, time of day, and demographic. For automated bidding strategies, set realistic target CPAs to control costs without sacrificing impression volume.

Calculating Cost Per Lead (CPL) in social media such as Facebook Ads is essential for marketers looking to tap into the vast audience that the platform boasts. With its detailed targeting options and diverse ad formats, Facebook offers a fertile ground for generating leads.

Facebook ads reach 1.95 billion of its total users, making it a platform with enormous advertising potential. To accurately calculate the Cost Per Lead (CPL) for your Facebook Ads, follow these essential steps:

Step 1: Identify Your Total Ad Spend: This is the total amount of money you have spent on your Facebook ad campaign during a specific period. Make sure to include all relevant costs associated with the campaign.

Step 2: Determine the Number of Leads Generated: Count the total number of leads acquired through the campaign. A lead is defined based on the objective of your campaign, which may vary from simple interest expressions like signing up for a newsletter to more committed actions like filling out a contact form.

Step 3: Calculate Your CPL: Use the formula:

This calculation gives you a straightforward metric to assess the cost-effectiveness of your lead generation efforts on Facebook. Remember, the lower your CPL, the more efficiently you are using your ad budget to generate leads.

1. Refine Your Audience Targeting: Tailor your ad targeting by narrowing down your audience based on demographics, interests, behaviors, and location. A more defined audience can lead to higher engagement rates, as your content is more relevant to a specific group.
2. Implement Retargeting Ads: Retargeting ads focus on users who have previously interacted with your brand but didn't convert. By displaying your ads to these individuals again, you increase the chances of conversion, as these users are already familiar with your brand.
3. Keep Testing and Optimizing: Continuously monitor your ad campaigns to identify what's working and what isn't. Use insights and data analytics to adjust your strategies, such as tweaking your ad copy, visuals, or targeting criteria.
4. Run A/B Tests on Your Facebook Campaigns: A/B testing involves creating two versions of your ad campaign to see which one performs better. By changing one variable at a time (e.g., headline, image, call-to-action), you can understand what resonates best with your audience.
5. Create New and Lookalike Audiences: Utilize Facebook’s powerful targeting tools to reach new people who are similar to your existing customers (lookalike audiences) or to define new audience segments based on specific criteria.

CPL is an affiliate marketing model where an advertiser pays for a person’s contact information. Unlike the CPA model, with CPL, the business gets a user who has not just performed the target action but is potentially interested in buying. There are two types of CPL ads: single opt-in and double opt-in.

For SOI CPL ads, a lead is any user who leaves contact information — in other words, any user who performs one action.

Main characteristics of the SOI model:

1. Ads usually have multiple transitions and high conversion rates.
2. You can test variations of your ads, headlines, landing pages, etc. across different audiences, even with a limited budget.
3. Attracted leads can be of low quality. For example, a user may enter an incorrect email address or phone number. As a result, it won’t be possible to contact them.
4. Due to unpredictable results and the risk of getting low-quality leads, payouts for this affiliate advertising model are usually low.
5. The SOI model's efficiency lies in its ability to accumulate a large volume of leads in a short period. This characteristic is particularly advantageous for campaigns aiming to quickly expand their database.
6. The simplicity of the SOI process enhances the user experience by minimizing the steps required to become a lead.
7. Lower payouts for SOI leads, due to their potential lower quality, make this model cost-effective for advertisers.

With this model, a user has to perform two actions to be considered a lead: leave their contact information and confirm it by clicking on a link in an email, for example.

Main characteristics of the DOI model:

1. Leads that advertisers receive using this model are of better quality than those received using SOI. A DOI lead is more likely to answer a callback or email and make a purchase.
2. Higher-quality leads mean higher payouts.
3. The DOI model inherently requires a higher level of engagement from users, as they must take the additional step of confirming their interest. This increased commitment typically indicates a stronger interest in the product or service, leading to a more engaged lead.
4. By ensuring that only verified emails enter your marketing funnel, the DOI process can significantly improve email deliverability rates.
5. While the DOI model typically generates fewer leads than SOI due to its additional confirmation step, the leads tend to have a higher intent to purchase or engage.

The CPL model is most often used by B2B projects, companies with a long sales cycle and expensive goods (real estate, cars, large electronics, household appliances, etc.), as well as companies in the service sector. This model is relevant for all businesses that need to get contact information for further work with a potential client or to complete the transaction.

A vertical in traffic arbitrage means product categories, traffic sources, ad creatives, methods, and approaches used to promote products and services.

The CPL model is especially relevant for the following verticals:

Lead generation in this vertical is more difficult than lead generation in other ones. This complexity leads to a higher cost per lead compared to other verticals. Financial products require a trust-based relationship, and acquiring qualified leads crucial for nurturing potential clients toward high-value transactions.

In the beauty and health sector, potential customers often seek personalized information before making a decision, such as details about spa procedures, costs, and scheduling. This desire for detailed information makes individuals more inclined to provide their contact details, facilitating effective lead generation. The personal nature of these services encourages higher engagement, making the CPL model highly suitable.

Sweepstakes verticals thrive on the CPL model due to the nature of the engagement – users are motivated to share their contact information like phone numbers or emails to participate in raffles and contests. This method effectively collects leads across various industries, from online stores to educational platforms, by leveraging the allure of winning.

Dating platforms extensively utilize the CPL model to gather leads. Users are generally willing to provide personal information to access the promise of meaningful connections, making lead generation in this vertical particularly effective. The personal investment in the outcome encourages users to engage deeply, providing a fertile ground for collecting high-quality leads.

What is the optimal CPL? By itself, this figure won’t explain anything to you. You should consider it along with other metrics: ad CTR, CPC, average check size, conversion rate, LTV (customer lifetime value), etc.

In addition, advertising campaigns with numerous leads and low CPL may not bring the desired result if you have issues on the site: low-quality content, broken forms, and various kinds of errors. Therefore, before launching CPL ads, test your landing pages, check titles, texts, illustrations, buttons, and forms, and make sure everything works correctly.

If you need help collecting data, calculating CPL, or preparing marketing reports, book an OWOX BI demo. Our colleagues will show you how OWOX BI products can help you calculate CPL.