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Search Engine Marketing

Ignore Average Cost Per Lead by Industry

Industry CPL benchmarks are misleading

Pay-per-click specialists often compare their metrics to industry benchmarks, particularly when trying to justify their services to a paying client. To most of those clients, the metric they care about is the cost per lead, and there is plenty of research available online showing average CPL segmented by industry and channel.

Average cost per lead by industry can be a useful way to start a discussion and see if your PPC efforts are in the right ballpark, but with so many variables that affect CPL the question is whether these benchmarks are more likely to help or hinder your ability to show value to your clients.

How leads are qualified

Not all leads are created equal, and you don’t want the dollar value of your highly qualified leads to be compared to those generated from other marketing channels using completely different methods.

Consider a pay-per-lead service like Bark, or directory listings like Angie’s List. They may be able sell leads at a price below what you can hope to achieve through search engine marketing, but because you didn’t acquire those leads with your own messaging, the right expectations have not been set for those leads. They are far less qualified.

Furthermore, average cost per lead by industry does not capture geographic and seasonal variation. The categories may be over-broad – conflating very different verticals like cosmetic surgery and pediatrics within the same medical industry, for instance.

How agencies calculate CPL by industry

Cost per lead is calculated by dividing the advertising cost by the number of leads:

Cost / Leads = CPL

It is a simple formula, yet it depends crucially on how the leads are measured. When data from multiple agencies are lumped together in industry average CPL, the metrics can be skewed by differences in how agencies collect and measure leads.

When comparing your metrics to others, here are some questions to ask:

  • Are your competitors diligently scrubbing their leads before calculating their metrics?
  • What percentage of their leads are generated from branded search terms, which will generally have a much lower CPL?
  • What methods are they using to capture leads, and just how qualified are they?
  • Are they careful not to double-count any leads? E.g. do they have any campaigns that count page visits as leads, blowing out the metrics? (I’ve seen it happen!)

If your industry averages are based on your own agency’s portfolio, and if lead tracking practices have been consistent across the data sample, then you are on firmer ground. But when you compare your metrics against published industry averages from other agencies, you might be comparing apples to oranges.

CPL should increase with growth

Yet another problem with industry average cost per lead is that leads should get more expensive with success.

A good marketing specialist will always pick the low-hanging fruit first and move up the tree until the Customer Acquisition Cost (CAC) is equal at the margin to the Customer Lifetime Value (LTV). The last thing you want is to get punished for your success.

Average cost per lead by industry distorts expectations

By dwelling on industry benchmarks, you direct the client’s attention to something that can be turned against you. Ultimately you can only do your best, and by focusing your client on a specific target you only invite them to fire you if the campaign falls short.

Furthermore, if you don’t properly educate your clients, your competitors can try to poach them by citing misleading CPL metrics. In PPC as in other thing, it is dangerous to make quantitative predictions.

Focus on Lead Value

Rather than compete with industry benchmarks, you should focus on the one benchmark that matters: Lead Value.

The lead value is a function of the client’s close rate and the LTV of the customer, but you can increase the lead value by qualifying your leads (and thus helping the client’s close rate).

Your job is to get as many leads as possible while keeping CPL below that benchmark. Ultimately you will show value to the client by providing high quality leads at a price that allows them to turn a profit. It also doesn’t hurt to educate the client on the measures you are taking to secure those leads at the best price possible, such as bid rules and optimizations.

Of course, any discussion of leads assumes that you have control of the landing page where your ads are sent. If you do not have that control, you can’t be held accountable for generating leads, and you will have to explore other deliverables like the Search Terms Report and the Quality Score Report.

Use the right metrics to tell your story

Digital marketers always live with the threat that competitors will try to lure away their clients with grandiose promises, and if you define your value by how your CPL stacks up against dubious industry CPL averages, you play right into their hands. Rather than compare yourself to others, tell your own story, and focus on getting your client a positive return on their investment.

Oh, one last thing. If you are a digital marketing professional with agency experience who believes in putting the client first, there’s a place for you at Ethical Digital.

By Kevin Frei

Kevin is an entrepreneur, paid media specialist, and intermittent nomad from Arizona. Ethical Digital is his third startup after GoMusicals.com and an online traffic school company. An avid traveler and economics hobbyist, Kevin's goal is to revolutionize the way service companies are organized so that more people can achieve the dream of professional (and locational) independence.

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