Cost Per Lead

The term Cost per Lead (short: CPL; also pay per lead / PPL) refers to a pricing model in online marketing. Advertisers pay, in this case, not for a sale or a click generated by the advertising campaigns, but for a lead. The cost-per-lead model is most commonly used when a direct purchase by a visitor on the website is not expected, because the product being offered needs further explanation, such as a life insurance policy.

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How the CPL is calculated

The cost per lead can be easily calculated. The formula is as follows:

 Expenditure on advertising for all leads / total number of leads = CPL in dollars 

Example

The advertising cost to generate 100 leads amounts to 2,500 dollars.

 2,500 dollars / 100 = 25 dollars = CPL 

The cost per lead in this example therefore is 25 dollars.

What is a lead?

A definition of the term “lead” is required to be able to fully explain CPL. In marketing, a lead refers to the contact details or in a few cases, the demographic details of an individual who is interested in the service or product of the advertiser. It is derived from the English verb “to lead.” Thus a lead could be considered to be a customer, user or potential buyer that literally has been “lead” to the offered product.

A lead can be a person that subscribed to a newsletter or someone who filled in a contact form. A lead provides the webmaster or the provider of a service or product, meaningful data concerning their potential customer.

Functionality

If an advertiser wants to generate quality leads, which can then be used by the sales team of a company, he can use the CPL model. Before the conclusion of a contract with the affiliate, a fixed price or a commission gets negotiated for each generated lead that the company is willing to pay.

Following this, the affiliate provides the necessary traffic to relevant landing pages or advertises with banners and other promotional material to gain customers. The advertising partner will be paid for each successfully generated contact, the so-called “qualified lead.”

Application areas

The pricing model per lead can be used as an alternative to other models such as CPO or CPA whenever a direct purchase cannot be expected from the interaction of potential customers with advertising material. The focus of the CPL method is therefore on acquiring customer data. Once evaluated, the data can be used for targeted acquisitions in consulting-intensive products, such as insurance or real estate.

CPL methods are suitable for email marketing as well as for downloads of computer software. Contact forms integrated on other websites can be paid for by CPL.

If leads are combined with applicable tracking methods, then CPL can also be used as part of affiliate marketing.

Within the framework of one’s own evaluations, the marketing team of a company can determine advertising expenses using the cost per lead method, for example, to get customers to fill out a contact form.

Benefits for online marketing

Cost per lead has an advantage in that advertising campaigns are more scalable. Similar to other compensation methods such as cost per order, the company pays only for successful acquisition of potential customers and not for advertising media such as banner ads. How much advertising is ultimately needed to generate individual leads is then no longer the responsibility of the company buying the leads, but that of the publisher who has agreed to the CPL.

Another advantage of the CPL method is that it generates potential customers who are more willing to buy than those generated by just mere clicks. Especially with consultation-intensive or costly services and products, the CPL method is most promising.

However, the higher chance of success is also associated with higher costs per lead than other payment methods such as CPO, or CPA.

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