CPL vs. CPA: Which Metric Matters Most?
As a business owner or brand manager, you may have heard of the terms “cost per lead” (CPL) and “cost per acquisition” (CPA). Both are valuable in understanding how effectively an ad campaign drives leads and conversions, but you may be wondering what they mean and if/how they can help your advertising campaigns.
To help address these uncertainties, we’ve compared them side by side to explain which is better.
Cost Per Lead (CPL)
Cost per lead (CPL) is an advertising model where businesses pay a set fee for each qualified lead they generate. Companies typically use CPL campaigns to acquire new customers or build their email list.
Advantages Of CPL:
- It allows you to track the effectiveness of your campaign more accurately since you only pay for leads that convert into customers.
- CPL campaigns allow businesses to track and measure their return on investment (ROI). By tracking how much money was spent on each lead, businesses can determine if their marketing efforts are paying off.
- You can control how much money is spent on each lead by setting a maximum cost per lead limit. This helps ensure your budget isn’t exceeded while still getting quality leads.
- You can easily adjust your campaign as needed if the cost per lead exceeds what you’re willing to pay for each one.
- CPL campaigns allow businesses to target specific audiences with tailored messages to maximize conversions. This helps ensure that only interested prospects are targeted, leading to higher conversion rates and more sales.
Disadvantages Of CPL:
- If there’s not enough demand or competition for the advertised product or service, generating enough leads at an affordable price may be difficult.
- The amount paid out per lead could be too low compared with other payment models, such as CPC (cost per click). This means that even though you may get more conversions, they might not be worth the investment due to their lower value overall.
How To Calculate Cost Per Lead
To calculate CPL, gather all the data related to your marketing campaign. This includes expenses associated with creating and running the campaign, such as media buys, creative fees, and production costs. Once these numbers are collected, divide them by the number of leads generated from that particular campaign – this result is your cost per lead for that specific effort.
For example, if a company spends $2,000 on an ad campaign and generates 100 leads, its CPL would be $20 ($2,000/100 = $20). This means they spent an average of $20 for every new lead acquired through this particular effort.
By using CPL calculations, companies can gain insight into which efforts are most effective at driving new business opportunities while keeping track of their overall ROI across different channels and campaigns.
It’s important to remember that just because one channel has higher results than another doesn’t necessarily mean it should be pursued further. Sometimes lower-performing channels still have value depending on factors like customer lifetime value or brand recognition goals, so consider these before making final decisions about budget allocations based solely on CPL metrics alone.
Cost Per Acquisition (CPA)
Cost per acquisition (CPA) is an advertising model in which advertisers pay for each successful sale or lead generated from their campaigns. CPA campaigns are structured to reward the advertiser when a customer completes a desired action, such as making a purchase or signing up for a newsletter.
Advantages Of CPA:
- You only pay when someone completes an action, such as making a purchase or signing up for a service or membership program, which makes it easier to measure ROI (return on investment).
- CPA models allow businesses to target specific audiences with tailored messages that are more likely to convert into sales or leads. This helps ensure that every dollar spent on advertising yields maximum results.
- It gives advertisers more flexibility in budgeting since they don’t need to worry about spending too much money upfront without knowing whether or not they’ll get any return from it later down the line.
- CPA campaigns enable businesses to track the success of their marketing efforts accurately. With this information, they can adjust their strategies to maximize ROI and minimize wasted ad spend.
- Since advertisers only pay after someone has taken action, this model encourages users who see ads but aren’t necessarily interested in buying right away to return later and make a purchase.
Disadvantages Of CPA:
- There’s no guarantee that people will take action after seeing an ad. Some might ignore it completely, which would mean wasted money for the advertiser if they used this model exclusively.
- Depending on how competitive the market is, costs associated with acquiring customers through this method could become relatively high if there’s lots of competition bidding up prices to achieve higher placements within search engine results pages.
To mitigate these risks, marketers must understand their target audience well enough to craft effective messaging while being transparent about how customer data will be used and stored securely if collected through online forms or other means during sign-up processes.
How To Calculate Cost Per Acquisition
Calculating Cost Per Acquisition (CPA) is an important part of any advertising campaign. By calculating CPA for your campaigns, you can determine how much money you are spending to acquire customers and measure the success of your ad campaigns.
To calculate CPA, divide the total amount spent on an ad campaign by the number of actions it generated. For example, if you spend $100 on an ad that generates ten downloads, your CPA would be $10 per download ($100/10). This will help you understand how effectively your ads drive conversions and whether they’re worth investing in further.
By correctly calculating CPA, business owners and media companies can make informed decisions about their marketing strategies and better understand which ones work best for them in terms of ROI (return on investment).
Which Is More Important – CPL Or CPA?
Both CPL and CPA metrics can be used to measure the success of advertising campaigns, but it’s essential to understand which is more important for your particular goals to maximize performance.
CPL and CPA models measure performance based on results rather than impressions or clicks.
However, CPA models focus on short-term results. When someone takes action, such as clicking an ad or making a purchase, the advertiser gets paid right away. This model works best when you’re looking for quick conversions and immediate returns on your investment.
On the other hand, CPL models take longer to convert but offer higher profits in the long run. With this model, advertisers pay only when someone completes a lead form or signs up for something like a newsletter subscription. While it may take months to see any returns from your campaign with this model, it can be highly profitable if done correctly over time.
The CPA model works well if you sell high-volume, low-margin products or services. It’s a great way to make short-term sales without building customer relationships. However, the downside is that once the sale has been made, you won’t see that customer again.
On the other hand, CPL works better for high-margin products with long sales cycles. This model allows you to build customer relationships over time and extract more value from each lead in the long run. The downside of this approach is that it requires more effort upfront and may not be as profitable in the short term as CPA models are.
Advantages Of Using Both Metrics Together
Using CPL and CPA together gives businesses an in-depth understanding of their campaigns’ performance over time. Simultaneously tracking both metrics allows companies to identify areas that need improvement to maximize their return on investment (ROI).
Additionally, combining these two metrics gives businesses insight into which channels drive higher-quality leads or customers that result in greater conversion rates. This allows them to adjust their strategies accordingly and optimize their marketing efforts for even greater ROI.
Learn How To Lower Your CPL With Remnant Advertising
Buying remnant advertising is one of the easiest ways to lower the cost per lead of just about any campaign. By receiving significantly more impressions and views for the same cost as a traditional ad campaign, your average cost per lead will continue to go down, especially if your conversion rates stay stable.
Our team will work closely with you to create an effective strategy for your business needs so you can make the most out of your budget. Contact us today to schedule a strategy session with a member of our team.