In the digital marketing landscape, there’s not a day that goes by without referring to some abbreviated term or some acronym that stands for some metric we need to pay attention to – PPC, CPC, CPM, CPA, CPV, CPL, etc. And some of them seem confusingly similar. Let’s take a look at CPL and CPA, which are two terms that are often used incorrectly.
What Is CPL (Cost Per Lead)?
CPL tells you how much money you’re spending in order to generate a lead.
Say you spend $100 on advertising and get five leads. You can probably do the math quickly here – that would be a $20 CPL ($100/5=$20). But unfortunately, every lead isn’t always a “good” lead, and those leads don’t always convert into paying customers. A $20 CPL could be great, but if none of those five leads convert, you may have a problem.
So why do we track CPL? Different marketing channels provide different CPLs. If you spend your $100 spent on display ads, you might get one lead – giving you a $100 CPL. On the other hand, if you spend $100 on paid search, you might get a $15 CPL.
That may sound great at first. A $15 CPL is much lower than $100. But which leads are more viable? It may turn out that your seven leads from the paid search ads might not turn into customers (giving you zero conversions), but your lead from the display campaign does convert.
CPL is ok to look at directionally. If you have a target CPL in mind for your leads, you need an adequate sales team that can consistently convert the same percentage of those leads into customers, month after month. But what if your sales team isn’t landing the easiest of those leads? Or, on the other end of the spectrum, what if the sales team is absolutely crushing it? Shouldn’t you spend a little more, even if it means pushing your CPL limit?
CPL helps with some decisions, but basing all of your decisions on this metric alone may get you some false positives.
What Is CPA (Cost Per Acquisition)?
CPA tells you how much money you’re spending to generate a conversion.
A better acronym to make some decisions on is CPA or Cost/Conversion. How much did it cost you to make that sale? In digital advertising, we tend to look at this metric as the number of dollars (ad spend or media spend) that contributed to generating revenue from the sale. Again, however, it’s another directional metric at best.
CPA leaves out operational costs in most scenarios. One operational cost could be a salaried employee needed to land the sale. And what if they needed to bring in a manager to help close the deal?
Since it’s easy math, let’s go back to the example of spending $100 on ads. If you spend $100 on advertising and make $400 in revenue, that’s pretty sweet! Excellent return on investment. So if you spend $10M, will you get $40M in return? It should be the same math, right?
If that $100 spent was the one display remarketing lead that converted, you might think, “Awesome, I’m getting a $4 ROAS!” (yet another acronym… it means Return On Ad Spend). But that one lead doesn’t really guarantee anything.
When looking at CPL, be cautious about how much energy you put into worrying about this number.
CPA can be a better metric, but you should still be careful when making decisions based on CPA alone. It’s best to look at it in relation to the total revenue from the conversion.
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