Can You Trust Your Gut? The Measuring Stick: Cost Per Lead

So most of us always wonder just how much we should be spending when it comes to advertising budgets. What do we need to spend to get more leads? This metric is perfect for helping you understand how to budget your advertising.

Cost Per Lead (New Customer) This defines how much it costs to generate a new order. Here’s how it works:

Ad Spend / New Orders = CPL

$1,000 / 10 orders = $100 for a New Order

Simple. Easy. Useful.

Example: You have a company that did 50 jobs for a total of $250,000 in sales over the last 12 months. You had 100 calls in for estimates, or leads. You spent $10,000 on advertising. Dividing $10,000 by 100 we get a cost of $100 per lead.

How does that info help us? Try this. If we want to increase our sales this year to $500,000, how can we do it? We know that we sold 50 jobs for a total of $250,000 in sales, resulting in an average job size of $5000. Assuming our job size will remain unchanged, to reach $500,000 next year we need to sell 100 jobs ($500,000 / $5000).

We know that we closed 50 jobs out of 100 leads last year, for a sales ratio of 1 in 2. To sell 100 jobs this year; we’ll need 200 leads, an increase of 100. 100 leads x $100 = $10,000. Our new advertising budget will then need to be $20,000 to help us reach this goal.

I realize there are many factors that can come into play and this may seem a basic, but remember, marketers who understand and use these tools will outperform those operating in the dark.