How to calculate your cost-per-lead (CPL)?

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In the sales teams of most companies, the number of leads generated (usually counted per month) is a metric that most sales managers obsess over. 

Similarly, the cost used to generate these leads, known as cost per lead, is also a KPI that managers need to keep in mind. Indeed, it is this KPI, among others, that will determine the profitability of sales operations implemented within the company.

In this article, we take a detailed look at the costs (obvious and hidden) that comprise the cost per lead. We'll also cover some of the variations in these costs and what implications they may have on the profitability of your business development. 

Finally, we'll look at situations where internalizing sales development becomes too costly, and where outsourcing to a specialized agency can be much more profitable. 

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Cost per lead, or CPL, is the amount of money spent to acquire a new prospect from a sales campaign, i.e. the cost of converting that prospect into a customer. CPL helps sales teams measure the profitability of their campaigns, and is the KPI on which virtually all sales development managers focus.

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Internalizing business development by building in-house teams is no mean feat. And yet, there has been a spectacular increase in the number of business developers hired and the number of business developer job offers posted (8457 on July 18, 2023 on Indeed for the job title "business developer" and 57000 for the job title "commercial"). 

The popularity of these positions within companies is undeniable, and shows that on the whole, companies choose to internalize when it comes to their business development. Calling on an external service provider/agency is only considered on the margins, which can sometimes be a shortcoming for certain companies that would greatly benefit from outsourcing.

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Based on this interest, we can assume that the need for outbound lead generation is booming, which makes the task of calculating cost per lead all the more topical and interesting for many companies.

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Developing your sales and sales team is a tough and costly task. Indeed, finding a competent business developer, training him or her until he or she reaches a sufficient level of competence, and paying him or her on a monthly basis all along the way, represents considerable costs. 

This is one of the reasons why placing success bonuses when lead generation targets are reached becomes so important. Among other things, these bonuses enable any business developer to stay motivated and perform optimally in the face of daily challenges, and thus become profitable for your company. 

However, while they help sales teams to perform, these bonuses represent costs that impact the cost per lead, and which we need to take into account when carrying out this exercise.

What's more, the lifespan of a junior business developer contract is only 1.8 years on average. When you factor in the same fixed costs of recruiting and then training junior business developers for a position that will only see them in the expected productivity for less than 2 years (1.8 years' seniority - 3.2 months' ramp-up time = 1.5 productive years), the pressure on HR to ensure that recruitment goes as smoothly as possible and bears fruit is therefore intense.

For the calculation, we used the salary averages given by Glassdoor and deliberately left out certain costs (software prices, bonuses and others) which, if included, would significantly increase the costs in the calculations.

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Here are the average costs to hire a single business developer (by the way, according to APEC, it takes an average of 9 weeks to fill a vacant sales position), train them, and then bring them to a desired level of productivity:

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Hiring, training and upgrading skills

6,455€

3 months 

Various studies estimate the cost of recruitment and the employee integration phase at between 15% and 25% of the gross annual salary of the person hired, as explained in a study by Payfit. For this exercise, we'll assume a cost of 20% of gross annual salary, i.e. 20% of €32,279. 

Base salary

32,279€

(Glassdoor)

Full salary - With bonuses

44,273€

(Glassdoor)

Company-paid contributions on annual salary 

15,830

(Urssaf)

Total cost paid by the company on annual salary 

60,103

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Costs of technologies and tools used (mailing software, CRM, applications, sales presentation media, etc.)

4,149€

(InsideSales report)

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Perhaps the easiest way to visualize and understand all this is to create a fictitious business developer position, with a budget secured at the beginning of the year. Taking into account all costs for one year, from hiring (once the person has been recruited), to training, to a period of full productivity that continues until the end of the year in question.

In calculating the cost of placing our fictitious business developer and making him fully productive, we also include the cost of the time spent by the manager(s) in training and managing our SDR, which is essential to any structured organization. We thus add 20% of the manager's time for this management with a salary that will cost the company €77,938 (€58,600 gross salary - salary given by Glassdoor supposed to be the average salary for a Sales Manager in France - to which we add 33% of contributions paid by the company, i.e. €19,338).

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Cost tables

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Now armed with our annual cost of a business developer, we can look for an average quota.

If we analyze the Bridge Group's SDR Report 2021, which includes the results that SDRs show on average in various sectors, we can estimate the monthly number of fully qualified sales meetings per SDR at 7. 

Now that we have an average number, we can calculate how many appointments a business developer can expect to generate on an annual basis. 7 x 12 = 84

Now that we have the necessary components, we can calculate the cost per lead using this formula:

CPL = Total costs spent ÷ Number of leads/RDV Demos generated

Note: The cost per lead per sector will vary according to the model used, the size of the accounts targeted, the maturity of the market and even the activity targeted by your business developer. In this article, we use average numbers to demonstrate the complexity and scope of the resources that go into converting a lead.

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Now that we have all the components of the formula, let's see how much a lead costs.

86.295/12 months = 7.191

7,275/7 = 1,027

CPL (cost per lead) = €1.027

We divided the annual costs spent on business developers by 12, to find a monthly total. In summary, business owners should expect to spend around €7,191 per month to obtain 7 converted appointments/demos. Next, we divided the costs spent on a business developer by the average number of rdvs/demos generated and obtained our CPL.

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Every sales and/or marketing manager is intimately familiar with his or her CAC (customer acquisition cost). The CAC is calculated by dividing all the costs spent to acquire new customers (expenses) by the number of customers acquired during the period in which the money was spent. To illustrate, if a company spent $500,000 in one year and acquired 50 customers in the same year, its CAC is $10,000 per customer.

The above cost-per-lead formula would be vital for companies that have focused their business development on outbound strategies to calculate CAC going forward. At a conversion rate of 25% of an appointment converted into a closed deal by your business developer, this then means that you spend €4,108 to generate a single sale (not counting other costs not included in the calculation for simplicity's sake).

The conversion rate counts for a lot and is greatly affected by the quality of appointments, but the CAC in our scenario has a very interesting range:

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Here, the slope of the conversion rate is quite interesting. Once the bar of 1 in 4 transactions (25%) has been passed, there is no spectacular drop in the CAC, even less so if we compare it to the difference between a conversion rate of 5% and 10%.

The conversion rates of leads generated by junior business developers and then managed by senior sales profiles will have a major impact on the profitability of the whole operation. The junior profiles are responsible for generating the most qualified opportunities possible, just as the sales people in charge of keeping appointments are responsible for obtaining the highest conversion rate on these same appointments. 

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Outbound lead generation in B2B still has a long way to go, and bringing sales teams in-house can be both a winning and a losing bet. 

Having a precise idea of the costs spent by your teams on lead generation, and therefore of the profitability of these sales operations, is therefore imperative for any organization wishing to develop viable, sustainable growth. 

When the cost of hiring and remunerating one or more business developers is higher than what can potentially be created by them, you'll need to find other alternatives for your business development. 

Lalaleads offers a quality alternative to companies wishing to generate sales without having to invest in hiring and developing in-house teams. As an expert and leader in outsourced B2B lead generation, the agency offers you high-performance multi-channel prospecting strategies that fit in with your business practices and strategies.

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