Accept it or not, with time, digital marketing has grown into a full-fledged master plan for every business striving to succeed. With companies spending huge bucks on digital ads, it’s clearly understandable why one should be paying attention to performance marketing.
Marketers have this habit of finding acronyms to describe the cost of something. For example, we have come across CPM (cost per mile), CPC (cost per click), CPL (cost per lead), and CPA (cost per acquisition).
We have come across various performance marketing agencies responsible for their clients’ paid media or their own paid campaigns.
CPL, or Cost Per Lead, is the amount of cost your business spends or a potential lead is costing you. Having this information leads you to calculate how effective your marketing campaign has been so far.
If you ask, CPL is calculated with the help of the total cost you spend on a campaign and the number of leads you’ve generated.
For instance, if an ad costs you $500 and generates 300 potential leads:
Cost Per Lead = Total campaign cost / Number of leads
I.e., CPL = $500 / 300
CPL = $1.66
Therefore, in other words, each new lead costs you $1.66.
Looking on to some advantages and disadvantages of Cost Per Leads.
- CPL has low risk rates and it is much easier to sell than CPM and CPC.
- CPL allows you to calculate an estimate for every defined action.
- To set up an effective CPL campaign, it may require daily management and look out on how your ad is running, when, and where is it being most effective.
- CPL has a lesser chance of getting switched in a short amount of time.
CPA, or Cost Per Acquisition, is the total cost that takes a potential lead down the marketing funnel and converts it into a potential sale.
Remember that it is not just the cost of a lead but also the conversion.
Compared to CPA, if you ask about the calculation of CPA, it is the cost of the total media of a marketing funnel divided by the number of successful conversions.
For instance, let’s take the same numbers as we took in CPL. You have spent $500 and generated 300 potential leads, among which only 30 leads got converted:
Cost Per Acquisition = Total campaign cost / Number of conversions
I.e., CPA = $500 / 30
CPA = $16.66 ~ $17
Therefore, in other words, each conversion costed you $17.
Looking on to some advantages and disadvantages of Cost Per Acquisition.
- Evaluates a specific action of the customer.
- It allows user to monitor and track all the different marketing channels.
- CPA models need high budgets to convert high-value products and achieve target sales.
- It takes time to optimize all channels as you create different campaigns.
Concluding the blog, here’s one thing that we now: both CPA and CPL are used by businesses in a wider way. The result depends upon your metrics and also the product or service that you want to sell.
Cost Per Leads is used to determine the success of a campaign whereas Cost Per Acquisition helps you determine the total marketing cost it took yu to convert a lead. Therefore, both the models are important for your business, depending upon your requirements.