Return on Investment. ROI. Working at an agency, I can tell you that ROI is extremely important to our clients. So important that if we don’t prove ROI, these clients might not be clients for very long. So when it comes to understanding ROI for our marketing strategy or tactics, we always need a plan to track ROI. So what does this have to do with determining your target cost per lead? Everything!
To fully understand what you’re getting out of your marketing efforts, you’re going to need to determine your lead value and target cost per lead (CPL).
How to Calculate Target Cost Per Lead (CPL)
To demonstrate, here’s a scenario: I own an upscale wedding venue in New Hampshire. I do pretty well, I see steady bookings, but a competitor just opened up down the road so I want up my game. My marketing agency pitches the idea of starting a paid search campaign through Google to capture newly engaged couples shopping in my targeted geo market. When I ask them how much budget they need, they ask me three questions, which I can answer with a little digging through my CRM:
Average Wedding Revenue: $25,000
Weddings Per Year: 100
Annual Web Inquires: 1,000
With a little math, we establish these numbers:
Number of Inquiries Need to Book One Wedding: 10
Revenue Value Per Inquiry: $2,500
Now, we know you can’t roll all of your revenue into marketing – that would be crazy. Usually I invest around 5% of my annual revenue into marketing, but since I want to be aggressive this year, I’ve decided to budget for 10%. That brings us to this:
Target Cost Per Lead: < $125
With a KPI established before our campaign even starts, I’ll have a benchmark to compare all my campaign reporting to. As long as my monthly investment, divided by the number of leads generated from the campaign (track those conversions goals in Google Analytics), is lower than my $125 CPL, I’m made in the shade and should have all the confidence to continue investing in my campaigns.
Dan Seitz is the Director of Strategy at Hawthorn Creative and has helped execute marketing strategies for clients from all over the hospitality industry. He is currently listening to “The Boys Are Back In Town” on repeat.