How To Set A Realistic Cost Per Lead

The most common thing I hear about ads is that leads are too expensive. Almost nobody who says it can tell me what an affordable lead would have been.

That number is not a matter of opinion. It comes out of your own business, and you can work it out in ten minutes.

Work backwards, not forwards

Start at the end and move back.

What is a customer worth? Not the first invoice. The total value of the relationship, including repeat work and referrals. A business with high repeat purchase can afford to pay far more for a lead than one with a single transaction.

What share of leads become customers? If one in ten enquiries becomes a job, ten leads buy you one customer.

How much of a customer's value are you willing to spend to get them? This is a business decision, not a marketing one. It depends on your margin and how fast you need the cash back.

Now the maths is simple. Customer value, times what proportion of it you will spend, divided by how many leads it takes to make one customer. That is your ceiling.

Two businesses, very different answers

A business where a customer is worth a few hundred dollars once, converting at one in ten, cannot pay much for a lead at all. Their whole strategy has to be cheap traffic or higher conversion.

A business where a customer stays for years and one in four enquiries converts can pay many times more per lead and still be well ahead.

Same industry, same platform, completely different targets. Which is why any benchmark you read online is close to useless for you specifically.

Cost per lead is the wrong number to optimise on its own

This is where most people go wrong.

Cheap leads that never convert cost more than expensive leads that do. If you optimise purely for the cheapest lead, you will find them, and they will be unqualified.

The number that matters is cost per customer, and after that, return on what you spent. Cost per lead is a leading indicator, useful because you get it fast, and dangerous if it is the only thing you look at.

Across our own portfolio the figure we hold ourselves to is a 20x average return on ad spend. That is the number that decides whether a campaign works, not what an individual lead cost.

Track the whole path or none of this works

You need to know which leads came from where, and what happened to them.

That means a form that captures the source, and someone recording the outcome. Without it, you are looking at the cost of enquiries and guessing at everything after.

Most businesses that cannot answer "what does a customer cost" have a tracking problem, not an advertising problem.

Give it enough volume to mean anything

Ten leads tells you nothing. A conversion rate off ten enquiries is noise, and decisions made on it are coin flips.

Let a campaign run long enough to produce a meaningful number of leads before you judge it. Killing campaigns at day four is the most expensive habit in paid advertising, because it means you keep paying the learning cost and never get the result.

Then improve the parts, in order

Once you have the number, there are three levers.

Lower the cost per lead. Usually creative, occasionally targeting.

Raise the conversion rate. Usually follow-up speed and sales process, which is free and almost always the biggest available gain.

Raise the customer value. Pricing, repeat purchase, referrals.

The second one is where most businesses have the most room and the least attention.