Cost per Lead by Channel: What Is It and Why Is It Important?

By Indeed Editorial Team

Published August 10, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

When building a marketing strategy, many businesses aim to choose channels that generate a high volume of leads. Cost per lead is a metric you can use to determine how effective a marketing campaign is. Learning how to find this value and how to reduce it might help you reduce wasteful marketing activities, generate more leads and increase revenue.

In this article, we define cost per lead, explain its importance, share how to find it and outline how to reduce cost per lead by channel.

What is cost per lead?

Cost per lead is a metric that evaluates how cost-effective a style of marketing is by determining how much money you spend to produce one reliable sales lead. Leads are potential customers who are likely to purchase products or services from your business.

While each business has criteria for determining a lead, these individuals typically express their interest by contacting you, filling out a form or pursuing your product. Leads range in quality and reliability. You can evaluate the quality of a lead by considering how serious their pursuits are and how likely they are to make a purchase.

The cost per lead gives you the price of one lead generated by a particular marketing activity or channel. You could find the cost per lead for a single digital advertisement, a month of social media posts, a multichannel campaign or your entire marketing spend.

To get an accurate metric, it's important to determine the criteria for your calculation and set clear boundaries when you're gathering data. This way, you can clearly define which leads came from which sources.

Related: Generating a Lead: How to Do It (Plus Tips)

Why is cost per lead by channel important?

Cost per lead, paired with other marketing metrics, can help you understand how your campaigns convert to revenue. You can use this figure to reflect on the effectiveness of a campaign. Determining the cost per lead by channel can help you compare different marketing channels and distribute your marketing budget. Most organizations aim for as low of a cost per lead as possible while still maintaining or even growing their revenue from those leads.

If your marketing strategy relies on different channels with different conditions, calculating the cost per lead by channel can help you understand and review metrics more easily. For example, a channel with high production costs, like event marketing or video, might only be valuable if it produces a lot of leads. Contrastingly, an inexpensive channel might produce so few leads you can remove it from your strategy.

Here are some other benefits to calculating your cost per lead:

  • Helps you determine your marketing return on investment (ROI)

  • Informs your marketing budget by identifying most and least expensive tactics

  • Provides data for forecasting future sales

  • Gives you the opportunity to reduce spending

  • Explains the relationship between spend and lead generation

  • Allows you to compare your data with industry standards

How to find cost per lead by channel

Here are four steps to can follow to find the cost per lead by each channel:

1. Determine boundaries

When you're calculating the cost per lead by each channel, it's helpful to set consistent boundaries. For example, you might choose to calculate this value at the end of each month. Determining the time limits helps you filter your data to ensure you're only using relevant expenditures and leads.

2. Add up your spend

To perform the cost per lead formula, it's vital that you know how much your organization spent on each channel. To find your entire spend for a single channel, add up expenses like content, supplies, vendors, and distribution. For example, to learn the cost per lead for a month of social media, you might add up the cost of custom designs, copy, promoted posts, subscriptions for scheduling and sending posts, partnerships with influencers and contests or giveaways.

3. Count your leads

Next, you can add up the leads generated by each channel. If you aren't already tracking leads, it's helpful to implement systems that automatically record your leads from each channel. For example, analytics tools can help you understand how many users click on a digital ad and browse your site. The cost per lead formula is typically most helpful when you only include reliable leads who are likely to make a purchase. Consider any internal standards for what constitutes a reliable lead before counting a lead.

4. Perform the cost per lead formula

The cost per lead formula is a simple calculation that helps you learn how much you spend on each lead. To find the value of each channel's marketing efforts, you can plug your data into the formula. Repeat this formula for every channel you use. Below is the cost per lead formula:

Cost per lead = total spend ÷ amount of new leads

Related: How To Use the Cost Per Lead Formula

How to reduce the cost per lead by channel

Here are seven steps you can take to reduce the cost per lead by channel:

1. Strengthen the quality of your campaigns

While different customers respond to different things, improving your assets might help reduce your cost per lead. Review your content and look for opportunities to optimize it. Consider using focus groups to test new copy, graphics or videos, and aim for clarity. If customers know what action they can take in response to your advertisements, they might be more likely to move forward.

2. Consider taking an inbound approach

Many organizations want potential customers to take actions that place them further along on a sales cycle. For example, when a user clicks a social media ad, you could direct them to a contact form instead of your homepage. When you switch to an inbound approach, you're open to bringing customers in at any stage in the cycle. This approach might offer visitors more control over their purchase experience and increase the chances of conversion.

3. Test ads using A/B testing

Using two different ads at once can help you gain more insight from your metrics and learn what characteristics inspire potential customers to respond. You can implement A/B testing by creating one ad as a control and one as a variable. To gain the clearest insights, aim for one major difference between the two ads.

For example, you could use two different spokespeople, two different taglines or two different color palettes. If you serve these two ads the same amount of times to the same audiences, one might perform better. Choosing a stronger ad can reduce your cost per channel.

Read more: What Is A/B Testing and How Is It Used in Marketing?

4. Improve your keywords

It's essential to choose the right keywords in the copy of your web pages because keywords influence the quality of leads your content attracts. It might be beneficial to review your keywords' performances. Consider replacing less successful keywords. Many factors can affect keyword performance, like competitors' actions, campaign changes or cultural shifts. Continually updating keywords to generate traffic can reduce your cost per lead.

Related: 19 Types of Keywords

6. Target specific leads

It's important to know the demographics for your products, and aiming your marketing towards those demographics can help increase the number of leads you receive and reduce your cost per lead. Review your user lists for important data and deliver targeted ads that address user history.

For example, users who've visited your site before might respond differently than users who are hearing about your product for the first time. Customizing the audiences for your campaigns might you reach people more effectively.

7. Use re-targeting campaigns

You can re-market to customers who've already seen your ads. There are many reasons interested customers might scroll past your ad without taking action. Re-targeting campaigns give you a second chance to make a conversion. These ads are typically inexpensive, too, which helps reduce your overall spend, lowering your cost per lead.

Explore more articles