Calculating Cost Per Lead

Because it helps you figure out how to increase your sales!

Divide the total advertising dollars you spend on each marketing tool (postcards or newspaper ads or online marketing, etc.) by the number of leads that came in from that marketing tool. (Note: Call tracking phone numbers help you to track this accurately!)

The result is your cost per lead.

Here’s an example:

Let’s say your company did 35 jobs last year for a total of $437,500 in sales.

You spent $15,000 on advertising with direct mail, and you received 140 calls, or leads, from it.

Dividing $15,000 by 140 you get a cost of $107 per lead.

Now, let’s assume you want to increase your sales this year to $650,000.

We know that you sold 35 jobs out of 140 leads last year, which means your sales ratio is 1 in 4. Those 35 jobs totaled $437,500 in sales, which means your average job size was $12,500. Assuming your job size will remain consistent, to reach $650,000 this year you will need to sell 52 jobs ($650,000 / $12,500).

To sell 52 jobs this year, you’ll need 208 leads, or an increase of 68 leads.

Multiply 208 leads x $107 (your cost per lead) and you have your new advertising budget of
$22,256.

Based on your past company sales performance, if you spend $22,256, and continue to sell 1 in 4 leads, you will hit your sales goal of $650,000.

Takeaway: Create a lead plan for your company. Watch it over time. Learn to recognize trends and make adjustments as needed to your marketing tools. Your goal is to decrease your CPL while you increase your leads and sales.

Knowledge is power, my friends!