When it comes to running a successful business, it’s important to understand the cost per lead (CPL) and cost per acquisition (CPA). This knowledge will help you determine how much money you need to invest in order to acquire new customers and how efficiently your marketing campaigns are performing.
Thecostperlead(CPL)isametricthatmeasuresthecostassociatedwithgaininganewlead, typically a name, phone number, and email address.It’susuallycalculatedbydividingthetotalcostofamarketing campaignbythenumberofleadsgenerated.
Thecostperacquisition(CPA),ontheotherhand,isametricthatmeasuresthecostassociatedwithconvertingaleadintoacustomer.It’susuallycalculatedbydividingthetotalcostofacampaignbythenumberofcustomersacquired.
Understandingthesetwometricsisessentialinordertooptimizeyourmarketingeffortsandmaximizeyourprofits.Butwhenitcomestomakingmarketingdecisions,it’simportanttorecognizethatthecostperleadispracticallyirrelevantifyourcostperacquisitionislessthanyouraverageordervalue.
Theaverageordervalue(AOV)isametricthatmeasurestheaverageamountofmoneyspentbycustomerswhen theypurchasefromyourbusiness(for our fitness businesses, it’s easiest if we use the first month’s dues or the revenue generated in the first 30 days of the client). It’susuallycalculatedbydividingyourtotalrevenuebythenumberofnew members for the month.
Whenthecostperacquisitionislessthantheaverageordervalue,itmeansthatyou’remakingaprofitonyourmarketingcampaigns.Asaresult,thecostperleadisnolongerrelevant.Instead,yourfocusshouldbeonevaluatingyourcostperacquisitionandincreasingyouraverageordervaluewhere possible.
Ifyourcostperacquisitionishigherthanyouraverageordervalue,itmeansthatyou’renotmakingaprofitonyourmarketingcampaigns.Inthissituation,there are a number of aspects to look at. A big factor are the processes in place in converting that lead to a client. What is your closing rate? What memberships or services are (if at all) clients converting into? Where in the process can we increase the effectiveness (increase show rate, increase conversion into memberships, etc.) and convert more leads in order to lower our cost per acquisition (CPL) and maximizeprofits.
Furthermore,it’salsoimportanttodevelophigh-valueoffersthatwillincreaseyouraverageordervalue.Bycreatingoffersthatcustomersfindirresistible,youcanincreasetheamountofmoneytheyspendwithyourbusiness.Thiswillensurethatyoumakeaprofitoneachcampaign,regardlessofthecostperlead.
Inconclusion,thecostperleadispracticallyirrelevantifyourcostperacquisitionislessthanyouraverageordervalue.Inthissituation,yourfocusshouldbeonincreasingyouraverageordervalueandreducingyourcostper acquisitioninordertomaximizeyourprofits.
