Quality Leads Matter: Why Cost Per Lead Isn’t Everything

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30-Second Summary

30-Second Summary

  • Cost Per Lead (CPL) overrates volume, prioritizing quantity over lead quality
  • Quality is crucial in lead generation, surpassing the importance of Cost Per Lead
  • CPL’s simplicity in calculation ignores lead quality considerations
  • ROAS serves as a better lead generation benchmark, considering campaign ROI
  • Hidden costs, including manpower, should factor into Cost Per Lead calculations
  • Breaking down lead quality into sales and marketing steps enhances the process
  • Segmentation and use of Qualified Leads (QLs) boost conversion rates

Lead generation is a crucial process for all businesses.

After all, the end goal of any business is to have enough leads in the funnel and turn them into paying customers.

In this pursuit of getting too many leads, sometimes we miss out on the bigger picture. We often focus all our efforts on a single metric like Cost Per Lead (CPL). And then begins the race of optimizing cost per lead and bringing it down.

But have you ever wondered if there’s something even more critical when it comes to lead generation?

The secret lies in these two words: lead quality.

Let’s go into more detail.

Why do we think CPL is overrated?

Cost per lead (CPL) is calculated by dividing the total amount of ad spend by the total number of leads generated.

While you may not want to bleed money acquiring leads, it’s also important to check whether you’re just getting tons of worthless leads.

Cost per lead

A major reason why many businesses focus on this metric is that it’s easy to calculate. Think about it. Closing a lead can take a long time, sometimes even months, if you’re on the B2B side of things. It then takes a long time to measure the quality and attribute these leads to the right campaign.

But there’s a way out. (more on this later)

First, let’s go through the three major reasons why CPL shouldn’t be the only metric you focus on.

  1. It focuses on volume over quality:The harsh truth is that more leads do not translate into more sales. This is the fundamental flaw of CPL, as it does not take into account the quality of the leads you’re generating.
    This also does not help you measure the effectiveness of your campaigns successfully. For example, you received 50 leads from a social media marketing campaign that you ran.
    In a similar time period and budget, you ran a Google ad campaign for a branded term and generated 15 leads.
    While the CPL for Google ads may turn out to be higher than the social media campaign, the quality of demand-driven audience through Google ads will be of high quality.
  2. It emphasizes cost over ROI value: ROAS (Return on Ad Spending) is a better benchmarking metric than CPL.
    It considers the ROI you are getting from your campaigns and not just the costs you’re incurring. Let’s continue with the earlier example.
    Google Ads: You spent $5000 monthly. For every $1 you spent, you generated $5 in profit.
    Social media campaign: You spent $3000 monthly. For every $1 you spent, you generated $4 in profit.
    The CPL for Google ads may be high, but so is the ROAS. When you only measure CPL, you might not take into account the quality of Google ads as an effective lead-generating campaign. Engaging with a proficient Google advertising agency can enhance not only the quantity but also the quality of leads generated through your ad campaigns.
  3. It doesn’t include hidden costs: Having a low CPL might mean that you have more leads to work on. But what if the quality of the leads is low? Your sales and marketing team may spend many hours and money going after these leads, but they might not convert.
    These manpower costs are hidden costs that businesses don’t consider while calculating CPL.
    This can make a big dent in your finances if you’re working in a country where manpower costs are high.
    It is thus important to measure campaign ROI in conjunction with CPL.

What is lead quality? How to make it a part of your lead generation process?

You can break down lead quality into further steps for your sales and marketing process. You can start by segmenting these leads:

lead generation process

Image source

Marketing Qualified Leads (MQLs): These leads will likely turn into paying customers for your brand. This is because they have taken certain actions like filling out a form on your website, signing up for a webinar or event of your company, etc.

Sales Qualified Leads (SQLs): These leads are MQLs that have progressed in the sales pipeline and have shown an intent to buy your product/service, like signing up for a demo, getting in touch with your sales team, etc.

Measure these leads with every lead generation campaign you run so that you can find out the effectiveness of each campaign.

You can even calculate the cost of sales qualified lead or marketing qualified lead. This is a better and more precise metric than calculating CPL.

Here’s a Twitter thread on how you can calculate the same:

Cost per lead image

Image source

Final Thoughts

At Intent Farm, we have come across many brands that focus on just CPL and try to keep optimizing it. We believe that while this is important, you cannot lose sight of lead quality.

Balancing cost and quality is what we prioritize for many brands while devising campaigns for them. It means targeting the right audience at the right stage with the right communication. 

While this may take some time to master yourself, you can reach out to us at Intent Farm if you need help.

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About the Author
Picture of Nikhil Dhoot

Nikhil Dhoot

Introducing Nikhil Dhoot, a digital marketing dynamo having an analytical mindset with a passion for performance marketing. With unmatched expertise in marketing strategies, funnel optimization, and data analysis.
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