Knowing Your Cost Per Lead (CPL)

EPISODE 29

Hello welcome to the Quick Marketing Trick Podcast. My name is Chris Godfrey and today I have a special episode for all the beginners out there.

If you’re a beginner with marketing, maybe you’ve just got into business or maybe you’ve just started wanting to do some Facebook Ads, or an ad in the newspaper it doesn’t matter, this principle I’m about to cover for you is going to be one of the more basic things you’ll learn, but also one of the most important no matter what stage of business you’re in.

Hello welcome back, how do you like my Intro theme song to the podcast? That entire intro cost me $65 Australian dollars. Not bad right?

Did you think it was going to be a full production cost with a band a studio, a script writer, a voice over guy, an audio producer and so on?  Nope, not in 2017 – 2018 it’s not. $65 in full and an hour or so of my time to finalise the script, that was it.

 

Anyway, back to this episode.

I’ve been thinking about business owners who are just starting out and are on the early stages of their journey the last couple of weeks. So I wanted to go back and cover some of the first steps, and the basic principles with marketing your business.

This is going to be a good episode for beginners. If you’re not a beginner and you don’t know what CPL means or how it works in detail, you should listen to this episode closely too.  

If you know all about CPL and you measure it and follow it every day, you can skip this episode.

How to Calculate CPL

How to Calculate CPL

 

Alright, first things first.

Today we’re going to cover Cost Per Lead / or CPL for your business. Even if you’ve never heard of this before or if you’ve heard of it but just never measured it, Cost Per Lead or “CPL” as I will call it from here on in, has ALWAYS been a part of your business and every business in operation. It’s always there.

So if it’s always there, if you measure and monitor it or not, maybe it’s a smart move to get a strong hold of this concept.

It’s kind of like saying “yeah I know we have staff on, but I don’t know how many hours in total they do.” Imagine that surprise at the end of the pay cycle, when your staff submit their hours and are waiting to be paid?

And it’s like saying “yes I have stock out the back, but I don’t know how much is there.”

Stock and staff costs are all set, fixed costs to your business. Even if they are written down on a piece of paper or on your whiteboard in your office you should have CPL written down along with it, and along with the following to:

  • Rent
  • Insurance
  • Electricity
  • Gas. etc, etc. And then:
  • Salary Costs
  • Stock Costs
  • Marketing Costs and CPL .

These and others are all basic and fundamental things to measure.

I think a big reason why the small business failure rate is so high in Australia and other parts of the world is because simple things like this aren’t tracked, and a few expenses creep up on the owners and all of a sudden it’s like BOOM! There’s more money owing to staff for their salary, then what there is in the bank.

So the owner dips into their personal account to makeup the shortfall but now they are behind and that little snowball starts getting bigger and bigger every week.

In short, know your numbers. And you don’t have to be a scientist, or a maths professor. So if you’ve been telling yourself “i’m not good with numbers..” . Your time is up. It is all simple, you just need to add it up.

It’s like this, you have: Rent + Wages + Electricity = $1,800 every week.

Your Total sales = $3,000.

So all the sales which were $3,000 minus the costs of $1,800 = $1,200 left over.

If you think it’s more complicated than that you’ve just been lying to yourself. There’s only a few more items to add like Superannuation, GST, etc. They are also only numbers.

Sorry for getting somewhat side tracked with this, but this episode is really for you if you’re a beginner or starting up so I’m trying to cover the basics here.

Let’s focus in on CPL now (cost per lead).

Ok, a SALE is a sale, right? A sale is someone who has given you money in exchange for one of your products.

A LEAD is someone who MIGHT give you money. The non-abbreviated name is a ‘Sales Lead’. But we’ll use LEAD for short.

Therefore, Leads do not include anyone who has already purchased from your business. We are putting all the people who are Sales Leads, or all the people who are ‘just looking’, or they’ve sent you an email or message to ask about your prices, we’re putting all these people into the one bucket called Leads.

I encourage you to write that down. Listening to anything is one thing, but writing it down is another.

Now, we’re going to add another group of people into that bucket. These are going to be Leads that we have paid for.

There are many ways to pay for Leads. Some are indirect, like buying a chalkboard, writing today’s special on it and putting it out the front of your cafe to make people stop, look and consider coming in and sitting down. That is still a way of attracting sales leads.

And some of the Leads you’ll pay for will be more direct. If you were to spend $100 on a Facebook Ad. Hopefully that ad generates some enquiries into your business. Every enquiry is a Lead.

Ok here is the juicy bit to this whole thing.

Let’s imagine for just a moment that you’re an Orthodontist who specialises in teeth braces for kids. So you start up a Facebook Ad and you’re going to target parents who are living within the area of your business.

Because braces are a higher ticket item you need to spend some more on advertising. So let’s continue to imagine that you spend $2,000 on a Facebook marketing campaign.

From that campaign you get 20 parents who call your office and set up a free consultation for their kid. Now you have 20 Sales Leads, and you spent $2,000 to get them.

So now we do the simple calculation on that:

 

$2000

/ divided by

20 Leads

=

$100 per Lead.

 

NOW you know that based on the Ad you ran on Facebook, it costs you $100 to get a consultation with a Parent and their kid in your dentist chair.

You can always work on decreasing that $100 with a better picture in your Ad, or better wording etc, buy we’ll leave all that for a different episode.

Continuing to imagine here for a moment, your cost to get one Sales Lead is $100. In other words, your CPL is $100.

For every one parent with a kid that may need braces to book in an consultation appointment with you, cost you $100.

Just by knowing this cost, you’re already in a powerful position. Knowing your CPL for this Facebook Advertising campaign will now let you figure out the rest.

Sit forward a little bit in your chair and listen closely to this, it’s not over complicated but if this is new to you, you might not be able to take this in and read your emails at the same time.

So it costs you $100 to get someone in your office. Now you have 20 parents come in with their kids. How many of these kids will actually end up getting braces? If all 20 get braces that means you got 20 out of 20.. A very good, but unrealistic result.

Let’s imagine that 5 out of these 20 parents ended up having their kids get braces. And it cost you $2,000 in advertising on Facebook to get these 5 paying customers, because now 20 free consultations have worked out to be 5 paying customers.

 

It’s important to separate these into different groups.

20 Sales Leads. And;

5 paying customers.

20 Sales Lead cost you $2,000. And that works out to be $100 per person.

The 5 paying customers also cost you $2,000 (if you ignore for the moment the time it took you to consult with each of the 20 parents).  

We know it costs you $100 to get a Sales Lead.

Now we know we have 5 paying customers, what did it cost to get 5 paying customers? It’s still the same marketing amount that you spent, which was $2,000. Now it’s just a matter of working that out again on calculator:

 

$2,000

/ divided by..

5 paying customers.

= $400 per customer.

 

So therefore, to get 1 paying customer. It cost you $400. If we calculate that the other way now: 5 paying customers x $400 = $2,000.

 

The big question comes down to, was it worth it? Was it profitable?

To answer this question, we need to know how much a Orthodontist will make to fit a set of braces. I believe the average price is approx $5,000. But of course that won’t all be profit will it? You will need to remove the cost of the materials, the cost of your time, the rent, the assistant nurse, etc, etc.

Let’s just say to make it very fair, that the profit is $2,000. So for a $5,000 procedure, the Orthodontist pockets $2,000.

Every patient = $2,000 .

We already know that you as the Orthodontist had 5 paying customers, out of the 20 sales leads you got in the first place from Facebook.

 

So, 5 paying customer

x

$2,000 profit each

= $10,000.

Where did these 5 paying customers from?

They came from the Facebook advertising campaign that cost the Orthodontist $2,000 in total.

So, was it worth it? Is it worth spending $2,000 in advertising to earn $10,000 ? That’s a $8,000 profit.

It’s worth it every single day of the week, I think!

When the Orthodontist did this marketing campaign, he learnt that it costs $100 to get one Sales Lead. And now he knows that a couple of months down the track when all the appointments and consultations are done, and now that some become paying clients and some do not, he knows that every $100 CPL is very very worth it. He is happy to pay $100 to get one sales lead, because he knows it will work out profitable in the long run.  

Because he will make $8,000 profit from a group of 20 sales leads. That works out to be $500 of profit for each of the 20 sales leads that came in for a consultation.

Now this dentist has done this marketing test, and done the simple numbers to figure it out like we’ve just gone through. He knows that for every $100 in cost to get a Sales Lead, he will make $500 profit.

Now he knows this, he has the opportunity to grow this business by advertising and getting as many $100 sales leads as possible.

This same principle is applicable to your business, and to any business.

How much does it cost you to get someone in the door?

How many people who come in the door, will become paying customers?

When you tally up the paying customers, was it worth the cost to get the whole lot in the door?

Remember, you’ve always been paying for the whole lot to come in the door in one way or another. If they become a paying customer or if they walk out after two seconds. You need to count and tally everyone.

It’s the same thing if one of the Mums with the Kids who need braces walked out of the Orthodontist office and never got braces. The cost to attract this person still needs to be counted, because it happened! The cost is real.

Knowing what CPL you can afford to pay to get 1 person, or 100 people in door is the key to releasing the floodgates.

The only thing you need to know is, how many Sales Lead can you process and service on any given day?

If the Orthodontist had 75 consultations booked in, it would be too many. Appointments would go over time, people would get mad. People would cancel and walk out, and he would not end up with the same amount of paying clients (or patients) as he expected. All because the process and the flow was not as smooth as before, when there was a more manageable amount of 20 Sales Leads.

You need to make sure you can service and process all the Sales Leads you will generate, even though not all of them will become paying customers. You need to make sure that 100% of sales leads have a pleasant experience so the few of them who will become paying customers won’t be turned off.. And will continue to be paying customers.

If you’re in business, you need to know your CPL.

It’s one of the first domino’s that you stack up, before putting all the other domino’s behind it.

  • $2,000 in advertising might lead to 100 Sales Leads in your inbox.
  • 100 Sales Leads might end up being 85 free quotes.
  • 85 free quotes might end up being 20 paying jobs.

When you know your CPL, you know what to expect from other people who you might hire or pay to complete your marketing for you.

If Facebook Ads cost you $100 per Sales Lead, and then you test a radio spot and it costs you $400 to get 1 Sales Lead, you know exactly how much worse that is. And you know not to waste money with that same radio station again.

In fact, you can say to the local radio station in advance, or to the local paper that you know $100 Cost Per Lead is what you need. They will know what this means, that’s for sure. This may help you get better pricing with them on Day 1.

If they don’t what it means, just run the other way and don’t deal with them. That would be like your mechanic asking what a radiator does.

When you know your CPL, the power is in your hands. If you want another 10 paying customers, you know what you’ll need to spend in advertising to get them.

To first find out your CPL, it does take a small leap of faith.

Like the example I gave you with the Orthodontist. He first had to spend $2,000 to know how many enquiries, or sales leads could come out the other end.

That leap of faith can be scary I know, but what you learn is usually worth the jump.

CPL = Cost Per Lead. How much does it cost you to get someone through your door? Or to call you? Or to submit an enquiry on your website? They are all examples of ‘sales leads’.

For every $100 you spend, how many website enquiries do you get? That will determine your CPL amount.

Different CPL’s from Different Sources

It’s very normal to have different CPL costs, depending on where you’re getting these sales leads from. Facebook may cost you $50, whereas Google might cost you $80.

If you were to outsource some cold calling for your business, that might cost you $70 CPL. Any seasoned marketer will tell you that it’s good to have sales leads coming in from multiple sources, for when the inevitable happens, and one goes down, or you get blocked or banned from Google for example. Or if one avenue simply stops working.

It’s wise to take the average CPL from your multiple sources and use that average as the one CPL figure you track and manage everything else by. Even if you’re only break even on one source, and the second source of Leads is highly profitable, consider keeping both of these live so you can at least keep business running if or when one goes down.

Take this podcast for example, the Quick Marketing Trick podcast. This is one avenue for me to get new leads and customers for my business. When I tell listeners that they can get a free copy of my book on how to get Facebook Ads working, just by going to quickmarketingtrick.com.au/freebook, that is cheaper source of advertising for me and a cheaper way to get new customers in the long run.

I will also advertise my book on Facebook Ads, USING FACEBOOK ADS! This brings in a higher number of Sales Leads than this Podcast currently does, but the cost is higher. So I need to take an average from both these two and my other sources, like google, youtube, referrals and so on.

If you know your CPL, and you know it works out profitable after you process all the sales leads (some will buy, some will not buy). Now you can scale your business to double or triple in size.

Because you know that $2,000 in advertisements will work out to be… whatever.

These numbers are just examples of course, and don’t any of this as a guarantee. Advertising and marketing will take some practice and tweaking.

Alright I will leave this episode here, it’s a topic we could talk about from many different angles. I ask you though if you have a question about how this relates to your business, or just a general question about CPL’s, come to the Quick Marketing Trick website, search for Episode 29 (which is this episode) and post your comment underneath the episode in the comment section.

I get an alert when a new comment comes in, so I’ll have a chance to look at your comment and respond in a day or two.

And like I just said, if you do want to learn more about how you can get Facebook ads working for your business, you can get a free copy of my book if you just cover the postage cost. I’ll have one sent out to you. Get your copy at quickmarketingtrick.com.au/freebook.

That’s it for now, if you want to talk about CPL some more, just enter your question on the website for Episode 29 and let’s take it from there.

Best wishes and talk soon.

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