CAC and CPL 101: Why these metrics matter to agency clients
Marketers that aren’t working on a million things at once just don’t exist. (And honestly, do we even want them to?) The ability to wear different hats is an admirable, sought-after trait in this competitive domain. But it can be complicated to manage multiple projects and thoroughly analyze how your work is performing.
Getting the work done is good. But proving that the work is helping grow your client’s business — while also growing yours — is far better.
Most marketers find themselves caught in a never-ending dilemma trying to answer one major question: “What’s the best way to show how my work is performing?” The answer? Metrics.
Metrics are the key performance indicators that let marketers know when things are going well or failing. Determining which metrics are most pertinent to measuring success is a continuous process, but customer acquisition cost (CAC) and cost per lead (CPL) are definitely two metrics that you should always have your eye on.
Learn more about measuring actionable metrics vs. vanity metrics.
Calculating Customer Acquisition Cost (CAC)
CAC is a calculation of how much cash a business has to spend in order to earn a new customer. Marketers are well aware that you have to spend money to make money. However, the goal is to make sure the amount of money you’re spending to acquire new customers remains less than the revenue that customer generates for your company.
CAC directly correlates with another important metric, lifetime value (LTV), which forecasts the total amount of revenue a business can earn from a customer. Together, CAC and LTV give marketers the ability to understand how long it takes to earn back your initial marketing and sales expenses.
To do this, first establish the period of time for which you’re going to calculate CAC. (This could be monthly, quarterly, or yearly — whatever you find is best for your organization, or your client’s organization.) Then, combine your total marketing and sales expenses within that time period, and divide that figure by the total number of customers gained in the specific timeframe.
CAC = Total marketing spend/ total number of new customers
You want your customers to generate enough revenue to cover your expenses, and a low CAC means you’re accomplishing that. This also means your spend is being utilized to successfully convert leads through efficient channels. The alternative — spending too much money on customers that aren’t contributing to substantial revenue growth — could result in serious long-term damage.
Check out how this agency lowered CAC by using CallRail.
Calculating Cost Per Lead (CPL)
CPL differs from CAC because it reveals how much is being spent to acquire a new lead — the stage before a prospect converts to a customer. In other words, a healthy CPL helps you achieve a healthy CAC. To calculate CPL, divide your total marketing ad spend by your total number of leads.
CPL = Total ad spend/total number of new leads
Similar to CAC, the goal should be to maintain a low CPL while maintaining a high quality of leads, in order to maximize your ad spend. You can also choose to leverage this metric in unique ways, like tracking CPL by channel or industry for a more granular view.
CPL is a necessary metric to include in attribution models, but can be extremely difficult to factor in if you have to pull data from multiple sources.
You’re now able to automate CPL calculations with CallRail’s Multi-Touch CPL Report, which looks at how much you’ve spent on Google Ads campaigns and which of those campaigns are producing the most-valuable inbound call leads. With this tool, marketers can alleviate many of their attribution frustrations, and use CPL data to enhance lead capture strategy and create cohesive attribution models.
Why CAC and CPL should matter to you
Your client wants to know you’re using their money to help sustainably scale their business, and you want to show them you’re doing exactly that.
All of this centers around two common goals between you and your client — consistently acquiring new customers and increasing revenue. The relationship between these metrics helps accomplish both goals. Low CAC and CPL evidence healthy strategies that are leading to quality customers that are spending good money.
Long-term success for you and your clients lies in the details that metrics like CAC and CPL provide. Tracking these metrics provides valuable insight to evaluate effectiveness, optimize budget strategies, and strengthen rapport with your clients by verifying your worth.
Here at CallRail, we’re constantly developing innovative new ways to streamline the client-management process and help your agency earn better ROI. Check out our new-and-improved Account Center, which helps agency users manage multiple clients with simplicity and ease.