Cost Per Lead

Why marketing teams should care about CPL

CPL shapes your marketing strategy by offering actionable insights to drive efficiency, scalability, and ROI. Here’s why understanding CPL is essential for your marketing success:

• Measures efficiency and optimizes marketing budgets: CPL shows how effectively your marketing budget turns prospects into leads. By breaking down CPL by channels like social media, email, or paid ads, you can see which platforms deliver leads at the lowest cost. For example, if paid ads have a lower CPL than email, you might shift more resources to ads. Ultimately, the goal is to generate more and higher quality leads for your sales team. CPL can help you do this by giving you valuable insights you can use to maximize your marketing ROI. 
• Provides early indicators of campaign performance: Unlike metrics focused on final outcomes like CAC or revenue, CPL serves as an early performance signal. If you notice a rising CPL during the initial phases of a campaign, it’s a signal that you need to assess and optimize your targeting, creative assets, or messaging before spending more.
• ‍Improves targeting: CPL works as a diagnostic tool to highlight inefficiencies like poor audience targeting, weak calls-to-action (CTAs), or ineffective campaign messaging. Regularly monitoring CPL helps fine-tune targeting to reach the right audience.

Why finance teams care about CPL

Finance teams consider CPL a metric that ties marketing efforts to the company’s profitability. They try to ensure the amount spent contributes effectively to the company’s growth. Here’s how CPL supports critical financial functions:

• Links marketing spend to revenue goals: CPL helps finance teams determine whether leads are acquired at a cost that supports long-term profitability and revenue targets.
• Supports forecasting and budgeting: CPL provides a clear benchmark for predicting resource requirements and setting growth targets. For example, if the goal is to scale up to 5,000 leads next quarter and CPL is $40, you know you’ll need to budget $200,000 for marketing to meet that goal. This kind of precision in forecasting helps SaaS companies budget more effectively and make informed resource allocation decisions.
• Profitability analysis: When combined with other metrics like CAC and Customer Lifetime Value (LTV), CPL plays a pivotal role in understanding the profitability of acquiring new customers. For example, a lead costing $50 with an average LTV of $5,000 shows a strong margin. On the other hand, a high CPL with a low LTV could indicate inefficiencies that need to be addressed before scaling customer acquisition efforts.
• Performance monitoring: CPL is a benchmark for monitoring the performance of marketing efforts over time. When you consider that sales and marketing costs for SaaS companies can range from 21%to 47% of revenue, CPL becomes a very important efficiency metric to watch. 
• Investor reporting: For SaaS companies seeking investment, CPL indicates cost-effective lead generation and shows investors the potential for scalable growth. Investors often evaluate CPL alongside CAC and LTV to assess customer acquisition and retention profitability. A competitive CPL can boost investor confidence and support funding efforts.

Factors influencing the cost per lead

Your CPL can be influenced by a variety of factors. When you understand what can affect your CPL, you can leverage that information to develop better strategies to optimize it so you use your resources more efficiently.  So, let’s examine the key factors that impact CPL and how they can impact lead generation:

Industry-specific factors

• Market competition level: Competitive markets drive up CPL as companies compete for limited customer attention.
• Average deal size: High-margin industries can handle a higher CPL, while low-margin sectors must keep costs low.
• Sales cycle length: Longer sales cycles increase CPL due to the ongoing costs of nurturing leads.
• Product/service complexity: Complex offerings often require more educational marketing, raising CPL.

Target audience characteristics

• Decision-maker seniority: Targeting senior executives can result in higher CPL due to their selective engagement with marketing campaigns.
• Geographic location: Marketing costs vary by region, with leads in high-income or global markets costing more.
• Market segment (B2B vs. B2C): B2B leads cost more due to the need for tailored and relationship-driven marketing targeted toward business leaders.
• Purchase intent: Targeted campaigns tend to cost more, but they often generate leads with a stronger intent to buy.

Marketing channel dynamics

• Platform advertising costs: Platforms like Google Ads or LinkedIn have higher CPL due to competitive bidding systems.
• Channel saturation: Overcrowded platforms often increase costs and reduce returns.
• Seasonal fluctuations: Advertising costs are higher during some days of the year, such as holidays or industry-specific peaks.
• Algorithm changes: Platform updates can change algorithms, which can affect campaign performance influencing CPL.

Campaign elements

• Ad quality and relevance: Better ads with accurate targeting help reduce wasted spending and improve CPL.
• Landing page conversion rate: A well-optimized landing page can help lower your CPL by turning more visitors into leads.
• Targeting precision: Poor targeting increases CPL by attracting unqualified leads.
• Offer attractiveness: Offering incentives like free trials or discounts can increase conversion rates and reduce CPL.

External market conditions

• Economic climate: Economic uncertainty or recession can make lead generation less effective.
• Industry trends: New trends can raise or lower the demand for certain products or services, driving up costs of demand generation.
• Regulatory environment: Changes in data privacy laws or advertising regulations can impact campaign performance.
• Seasonal demands: Some industries see seasonal changes that impact the cost of generating leads.

Internal company factors

• Brand recognition: Building strong brand awareness lowers CPL by increasing organic traffic and trust.
• Marketing budget size: Bigger budgets allow for bigger and better campaigns, but they need careful management to prevent waste.
• Content quality: Creating valuable, engaging content helps attract better leads and reduces the CPL.
• Sales team efficiency: A well-organized sales team responds to leads quickly, boosting conversion rates and maximizing the value of each lead.

How to set realistic CPL goals

While benchmarking is a great way to set goals and achieve alignment, they may not be much help in setting realistic CPL goals. This is because most of the benchmarks you’ll find are expressed in terms of marketing channels. As such, they don’t really capture the inherent variability in how different companies define what a lead is or the impacts of the many factors discussed earlier that can impact CPL.  

That doesn’t mean that CPL benchmarks aren’t at all useful. On the contrary. Because they offer insights into the relative costs of acquiring leads through different marketing channels, they can help to inform marketing strategies and budgets.  

For example, according to First Page Sage, the average CPL for B2B SaaS companies is $310 for paid channels and $164 for organic channels. While this doesn’t provide enough granularity to help you understand CPL across different channels within these categories, it does tell you that investing in organic may be more cost-effective. Of course, there are other factors you probably also need to consider, such as how quickly you need those leads.  

Use a data-driven approach to determine an achievable CPL goal

One of the best ways to determine a realistic CPL is to work backward from your revenue target, using conversion rates at different stages in your marketing and sales funnel. Here’s an example showing the data you will need and how to use it to determine your CPL goal: 

• Start with the revenue target: In our example, our revenue goal is $10,000,000 in new ARR for the year.  
• Average Deal Size: We know that on average, each closed deal generates $50,000 in revenue. 
• Deals needed: To meet our $10,000,000 ARR target, we need 200 deals ($10,000,000 ÷ $50,000 = 200).
• SQL-to-Deal Conversion Rate: We know that about 25% of our SQLs convert into deals.
• SQLs needed: Using the SQL-to-Deal Conversion Rate, we now know that to close 200 deals, we need 800 SQLs (200 deals ÷ 25% conversion rate = 800 SQLs).
• SQLs from marketing: Let’s say that marketing is responsible for generating 70% of our SQLs. This means our marketing efforts ultimately need to deliver the leads necessary to result in 560 SQLs (800 SQLs × 70% = 560). It’s important to note here that the typical marketing and sales funnel include additional stages that we must consider in this process of back-calculating to determine our CPL goal. These are covered in the next steps. 
• MQL-to-SQL Conversion Rate: From past performance, we know that 80% of our MQLs convert into SQLs.
• MQLs needed from marketing: Using our MQL-to-SQL Conversion rate, we determine that in order to get 560 SQLs, we’re going to need 700 MQLs (560 SQLs ÷ 80% conversion rate = 700).
• Lead-to-MQL Conversion Rate: We know from our historical data that about 50% of our initial leads become MQLs. 
• Leads required: Using our Lead-to-MQL Conversion Rate, we can determine how many leads we need to generate through our marketing efforts to hit our 700-MQL target. We’ll need a total of 1400 leads (700 MQLs ÷ 50% conversion rate = 1400).
• Cost per Lead (CPL): At this point, we need to decide how much we can afford (or are willing to spend) on generating leads – a target CPL. Let’s say that’s $2500 per lead. 
• Lead generation budget needed: Now we know that to generate 1,400 leads we need to reach our target ARR of $10,000,000 we started with in Step 1, we’ll need to budget $3,500,000 (1,400 leads × $2,500 = $3,500,000).

This method offers a granular, and thus more accurate way of determining CPL because it factors in conversion rates which vary with funnel stage. Note that if you don’t have enough data to determine conversion rates for each stage in your funnel, you can use your Lead-to-Customer Conversion Rate. It probably won’t be quite as reliable but will still give you a reasonably realistic estimate. 

Another benefit of this approach is that by starting with the revenue target, it directly links marketing performance metrics to business goals. This helps ensure that marketing efforts contribute directly to revenue growth, profitability, and strategic objectives.

What constitutes a “realistic” CPL will differ from company to company. That’s why it’s important to use a data-driven method like the one we’ve described. 

It’s also important to consider your company’s maturity, brand recognition, sales processes, and any other relevant factors to determine what is realistic for you. For example, startups might need a lower CPL to stay competitive, while established brands can handle higher costs thanks to better conversion rates.

By setting CPL goals that align with your overall business objectives, you can achieve sustainable growth and make the best use of your resources.

How to optimize your CPL

Understanding the lead generation funnel stages and their associated costs can help you optimize your CPL to generate higher-quality leads while staying within budget. Here are some best practices that will help you do that: 

• Test your ad creative, copy, and landing pages: A/B testing different versions of ads and landing pages helps understand what works best for your audience. With testing, you can adjust elements like headlines, images, calls-to-action, and forms to find the best combinations that boost conversions and lower CPL over time.
• Use detailed audience targeting and retargeting: Use tools like social media segmentation or retargeting ads to focus on high-intent prospects. Narrowing your audience down to segments more likely to engage helps to reduce wasteful spending on unqualified leads and will make your campaigns more effective. 
• Focus budget on best-performing channels and times: Use historical data to find the best channels and timeframes for your lead generation activities. Increase budget for high-performing platforms or campaigns and cut spending on underperformers to maximize ROI. 
• Automate campaign workflows: Automation tools simplify campaign management by allowing you to schedule ads, send follow-ups, and optimize bids in real time to make your ad spend more cost-effective. Automated workflows save time and ensure resources are used effectively.
• Experiment with non-traditional or lesser-known channels: Explore emerging channels with less competition, like niche forums, smaller social platforms, or industry influencers. These can offer higher ROI at a lower CPL.    
• Increase offer attractiveness: Free trials, discounts, or exclusive content boost conversion rates. Timed offers encourage leads to engage and move through the sales funnel faster.

Improve your CPL with Drivetrain

Managing CPL helps businesses scale while aligning marketing spend with revenue goals. Advanced financial planning and analysis (FP&A) tools enable real-time data collection, granular analysis, and automated reporting, helping SaaS companies identify trends, optimize campaigns, and make data-driven decisions. 

Drivetrain is a comprehensive FP&A platform that can do all of these things and more, allowing you to evaluate performance across multiple channels and adjust marketing strategies with agility.

Drivetrain makes tracking and managing CPL effortless by providing an integrated platform to monitor key metrics like CPL, CAC, and LTV. With Drivetrain, SaaS companies gain end-to-end visibility into revenue growth and unit economics, empowering them to make smarter, faster decisions.