If you generate a lead for $5, what’s the biggest margin you can sell it for? At what realistic price a business would be willing to buy it?
Well, to give you a quick idea, calculate 1% – 3% of the maximum revenue that a business would make from the lead you’ve generated and then charge a figure under the max limit.
On the surface, the process sounds simple and easy but it really isn’t. If you have a bit of experience in pay per lead marketing, you’d know the complexities of determining your charge per lead all too well.
So, in this post, we’ll provide you with a comprehensive guide (packed with insider insights) on how to estimate your cost per lead and determine fair & just charges accordingly.
Let’s get started!
How much to charge for a lead?
Now, here’s the thing: a business would only hire you to generate leads for them if you can do the job at a lower price than the cost incurred to the business if they were to generate the leads themselves.
If you generate leads for them at the same price as their internal marketing/lead gen team, why would they hire you?
You see, the idea is to cut down the cost.
The purpose of outsourcing lead generation is to save costs on their end by handing over the job to professionals (i.e., people who could leverage their expertise and generate leads at half the price – or at least, lower than what it costs them).
So, when figuring out your charges per lead, the first thing you need to figure out is how much does it cost for your client to generate leads themselves?
How do you figure that out? That’s what the next section explains!
Your charges for a lead depend on the value you provide. If you provide higher quality leads (easily convertible), you can charge more than industry average (chart given below).
But if you provide poor leads that hardly ever convert, you won’t be able to earn a sustainable amount from your lead gen business.
How much does a lead cost?
To be really honest, there’s no one-word answer to this question. The exact cost of a lead depends on A LOT of factors. We’ve listed and explained all of these factors in the next section.
But to understand those factors, you need to first understand what CPL is.
Cost Per Lead or CPL is defined as the dollar amount you spend to acquire a potential customer or lead.
As a lead generator, this means CPL is the money you spent on running an ad or any other marketing campaign to acquire that lead.
It is NOT the same as the figure you quote to your client.
You can charge whatever (reasonable) amount you want from your client depending on your lead quality – whichis determined by the 7 factors given below.
But for estimation purposes; you can charge 1% to 3% of the total gross revenue that your client makes from the generated leads.
What does this percentage really mean?
Understand the fact that a business needs to keep a budget for marketing in the first place. This is how they’ll make people aware of what they sell and convince them to buy it.
Usually, the marketing budget allocated by a business is a certain percentage of sales. For most businesses, it is 20% – 60% — meaning the marketing cost for a product worth $100 could range from $20 – $60.
However, if they utilize this marketing budget on their own, i.e., generate leads by themselves, they may have to put in additional effort in arranging a skilled team of media buyers, copywriters, tech and analytics specialists, and whatnot – just to get marketing up and running. This, in turn, could add to their original marketing budget or stretch it to its maximum.
They’ll end up using all of their marketing budget. Or might even end up overspending because it’s not their game, not their expertise. They don’t know what strategies to implement and how to cut down costs.
So, what smart businesses do, they outsource the job to professionals (i.e., lead generation experts). The hired lead gen professional (yes, you.) serves as an external marketing team for them and generates leads for them while utilizing their marketing budget as efficiently as possible.
Say a business expects to spend $60 on generating one lead if its internal team does the job. In this case, a lead gen expert should be able to help them generate the same lead for $55 or less.
Now, this is where the percentage quoted above comes in, i.e., 1% – 3%.
- It’s a good idea to charge 1% – 1.5% of the total sale for low-value leads. Low-value leads are leads that are not easily convertible, they may have a lengthy nurturing period ahead of them before they finally convert, or they may be in low-competition industries. (read more about low comp industries below!)
- It’s a good idea to charge 2% – 3% of the total sale for high-value leads. High-value leads are hot leads or easily convertible leads. Or these leads concern high-competition industries.
How to find out the client’s revenue?
Your client’s revenue is how much money they receive when a product or service is sold.
And this is the number you need to make estimations for your per-lead charges. For now, let’s call this number X.
Suppose you’re a lead generator and you have a client who sells solar panels. Their most sought out service is worth $16000.
There are three ways to find out the exact number:
- Ask around
- Act like a customer
- Industry research
When your client sells one installation, they earn $16000 in revenue. This is their gross revenue and the X number you need to make your estimations.
If your client successfully sells a solar panel installation to a lead you generated for them, they will earn $16000. You can charge 1% – 3% of the total revenue, depending on your lead quality.
Given that, in this particular case, your charges could look like this:
- 1% of $16000 = $160/lead
- 1.5% of $16000 = $240/lead
- 2% of $16000 = $320/lead
- 3% of $16000 = $480/lead
If you sell 100 leads to this client and charge 3% of their total gross revenue, you would make $48000! 🤯
Use our calculator to find out how much to charge
The key to maximizing the amount you take home is to lower the cost per lead as much as possible and increase your conversion rate as much as possible. This can be done if you know how to maximize the overall efficiency of your marketing budget.
And you can only do that if you know how to conduct proper market research and effectively put the collected data to use.
So, as we said earlier, you need to gather A LOT of data before you can actually calculate the exact cost per lead.
So, let us first walk you through the seven major factors that affect lead pricing.
And then, we’ll introduce you to something that can help you skip the ‘struggle’ phase of determining your charges per lead and get started with business right away.
We promise the solution we’re about to introduce at the end of this post will truly bridge the gap between you and HIGHLY CONVERTIBLE leads.
I.e., leads that have a potential for low CPL and high conversion.
This means you’ll be able to start your lead generation business off on the right foot and maximize your chances of success as you move ahead. Who knows, you could be taking big amounts home in no time…
So, hold on tight and read through!
7 Factors Affecting Lead Pricing
Without further ado, let’s dive into the factors that truly determine our answer to how much to charge for a lead:
According to a report, the average cost per lead for the travel industry had a year-over-year increase of about 68 percent. Meanwhile, the average cost per lead for the education industry had a year-over-year decline of about 29 percent.
Check out the increase and decrease in per-lead pricing for other industries in this image:
Now, what does this data really mean? Why are we seeing a change in lead price over time?
Well, it’s because of the change in consumer behavior (that’s what makes up industry trends!).
For example, people spent lavishly on travel back in 2019. The average travel expenditure per American household was about $2100.
But during the pandemic, people became more conscious of their spending habits. And by 2020, the average travel expenditure per American household had dropped to $926. This is a massive 56% drop.
Although these figures have improved in 2022 and 2023, they’re still not as good as that of 2019. More and more people are seeking cheaper ways to travel around and hence, spending less.
What does this mean for lead generators in the travel industry?
This means it will be difficult to find a lead.
Hence, the cost per lead shot up. We got a major 68% increase. Businesses that seek leads for their travel business are willing to (and will have to) pay more per lead. Because it will take more effort to:
- Find a high-quality lead that easily converts
- Find an average-quality lead and nurture them
The opposite is true for the education industry. After the pandemic, people are willing to spend as much as required towards education – meaning more leads are available in the market.
It’s easier for lead generators to fish these leads for their clients. Hence, the cost per lead has decreased.
Does a decrease in CPL mean you should lower your charge per lead?
Not necessarily. If you’re really good at generating high-quality leads, you can charge a combination of low CPL and higher-than-average service charges. Clients WILL pay if you bring them hot leads.
⚡ Not confident about the quality of your leads? Read this: The Key to Higher Quality Leads
Hey, hold on. We missed a point.
How do you figure out how much to charge for a lead based on your industry?
Grab a notebook, reliable industry research tools & resources, and assess your industry in the following aspects:
- Level of competition: If there are many companies competing for the same leads, then the cost of those leads is likely to be higher in that industry as compared to an industry with less competition.
- Demand: In industries where the lead demand is high, the cost of those leads is high too.
- Sales cycle: Industries with longer sales cycles (such as pharmaceuticals) usually have a higher cost per lead. That’s because companies will need to invest more time and resources to convert those leads into customers.
- Average deal size: If the average deal size is larger in an industry, the cost of leads will be higher. That’s because companies will be eager to pay more to acquire leads that’ll bring them more money.
- Regulations: If there are strict regulations within an industry (such as cybersecurity), companies may need to invest more resources to ensure that their leads meet regulatory requirements. This, in turn, can increase the cost of those leads
Based on these, you’ll be able to come up with a rough estimate.
That said, here’s an overview of the average cost per lead by industry. Use this as a starting point when figuring out your lead pricing for 2023.
|Industry||Average Cost Per Lead|
|Travel & Tourism||$106|
|IT & Services||$370|
Above we briefly mentioned the level of competition.
But how do you really investigate this aspect and use it to determine your charge for lead?
Well, let’s understand it first.
The competition in an industry basically refers to the presence of many businesses within the same ring. They are competing against each other to win the maximum possible customers from the same pool.
Some of the most highly competitive industries are:
- Finance and banking
- Real estate
- Legal services
- Healthcare and medical services
- Education and training
- Marketing and advertising
- E-commerce and online retail
- Travel and hospitality
- Software and technology
Since many options are available to the end buyer in each of these industries, capturing a lead is a tough job. When we say capture, we mean finding a potential lead (can be high quality or average quality) and holding their attention long enough to convert them.
For example, consider the real estate industry in a large metropolitan city like New York. The level of competition for leads in this area is incredibly high due to the number of real estate agents operating in the area.
According to a study, the average cost per lead in the real estate industry is around $45. But in highly competitive areas like New York City, the cost per lead may exceed $100 or more. It’s because the comp is high and real estate agents compete for a limited pool of potential buyers and sellers.
Similarly, consider an industry with lower competition, such as the pet grooming industry. In this industry, there are fewer businesses competing for leads. And hence, the average cost per lead is as low as $15. That’s because low comp means low lead generation costs.
So, by the rule of thumb, the higher the industry competition, the higher price you should charge.
But of course, charge a reasonably high price. If you charge $500 per lead in the NY scenario discussed above, you’ll have a tough time finding clients even if you sell ready-to-convert leads.
We recommend beginning your investigation for this aspect by checking out how much your competitors are charging per lead. Next, survey your potential customers to learn how much they are willing to pay for a hot lead. You might want to get directly in touch with them over the phone, email, or social media.
This doesn’t mean the lead is worth exactly that. You understand sales right? But it gives you a base number to go against and convince a client of the value of your leads.
3. Size & Quality of Target Audience
Your target audience is basically a specific segment within your target market. It is the intended audience for a specific marketing campaign.
For example, say you sell cars.
Your target market can include all sorts of vehicle drivers. But if you have a marketing campaign promoting a spacious car model, your target audience would be vehicle drivers looking for ample interior space.
Target Market VS Target Audience
Now, here’s how the size and quality of the target audience impact the cost per lead:
- Size: The larger the target audience, the lower the cost per lead (because there are more potential leads to generate).
- Quality: The higher the quality of the target audience, the higher cost of a lead. Note that high quality here means that the audience is highly targeted and relevant to the product/service being offered.
In light of this, lead generators must strike a balance between the size and quality of the target audience to optimize the cost per lead.
Identify the most relevant and high-quality target audience for your client’s product or service, while also ensuring that the target audience is large enough to generate a sufficient number of leads to meet your client’s needs.
For example, suppose you are a golf equipment retailer looking to generate leads for your online store and you have identified two target audiences to target.
Here’s a comparison of both:
|All amateur golfers in the United States||Broad audience. There are approximately 24 million amateur golfers in the United States||It may include many golfers who are not interested in purchasing new golf equipment. As a result, lead quality may be lower.||*If you purchase a list of 10,000 leads from this audience, it may cost you around $1,500 to $2,500, which is a cost per lead of $0.15 to $0.25.|
|Golfers with a handicap between 5 and 15 who have recently purchased golf clubs||Smaller & specific audience. There are approximately 500,000 golfers in the United States who meet these criteria.||It may include a large number of golfers who are interested in purchasing new golf equipment. As a result, lead quality may be higher.||*If you purchase a list of 5,000 leads from this audience, it may cost you around $2,500 to $5,000, which is a cost per lead of $0.50 to $1.00.|
*Sketched examples for understanding purposes
In this example, you can see that targeting a specific and higher-quality audience can result in a higher cost per lead. But at the same time, it may be ultimately more cost-effective because the leads generated are more likely to convert into paying customers.
4. Accessibility to Target Audience
Accessibility to the target audience refers to being able to reach your target audience easily. This is where concerns for average cost per lead by marketing channels surfaces.
Pick a channel that gives you the highest ROI and is also your target audience’s favorite place to hang out.
For example, if you generate leads for a company that offers solar panel installation services. You should:
- Partner with home improvement blogs and relevant social media influencers. Because the audience of these two specific channels comprises potential customers for you that are easiest to convert.
- Run pay per lead ads on Facebook and Google. Because that’s where your target audience is searching for you.
Similarly, if you sell trendy bags for young adults, you should opt for TikTok or Instagram. Structure your marketing campaign around these platforms and calculate costs accordingly.
Note that this approach increases the chances of generating high-quality leads and achieving a lower cost per lead (meaning you can charge more per lead).
The country where your target audience lives has a lot to do with how much to charge for a lead. And that’s because it significantly impacts the lead costs.
Consider the following aspects:
- Market Demand: Every country has a different market size and market maturity. A big and mature market means more opportunities for a profitable business.
- Industry vertical: Some industries are more saturated in a few countries compared to others. For example, real estate companies are more competitive in the United States as compared to Canada.
- Advertising cost: Ad spending varies greatly from region to region, depending on currency rates and economical status. For example, advertising costs in the US will be higher. Hence, the cost for generating leads and consequently your charges per lead will be higher too.
- Data availability: In some countries, there may be stricter data privacy laws, making it more difficult and expensive to acquire the necessary data to generate leads.
- Cultural Factors: The language and communication styles of your target audience can also impact lead costs. For example, if your target audience lives in a place where the language and communication styles are significantly different from your own, you may need to invest in additional resources such as translators or cultural consultants. This, in turn, may drive up the overall cost of generating leads.
Conduct thorough research for all these aspects when figuring out how much does a lead costs for your business.
6. Price of Product/Service
Here comes the factor that contributes a MAJOR share to the profits you make.
If your client sells a product or service worth $75, you can only make $0.75 – $2.25 per lead (1% – 3%).
But if your client sells a product/service worth $1000, you can make $10 – $30 per lead.
This means you can make bigger numbers if your client sells a high-ticket product/service.
To get a better idea, let’s check out what the numbers for a $1500 product could look like.
Suppose your client is spending 20% on marketing ($300).
Now, if there is a 10% conversion rate, the cost per lead will be $30. ($300/10 leads).
This means you have a budget of $300 to generate leads.
To maintain profitability, you ought to ensure that cost per lead must remain below $30. However, you also need to balance this with the quality of the leads you’re generating. It will ensure that the leads generated continue to have a strong chance of converting to paying customers.
7. Method of Lead Generation
There are different methods of lead generation. These include:
Each of these methods has a certain cost of implementation. And this affects your overall leads cost.
Ideally, you want to keep the cost of lead generation as low as possible. So, you can attract more clients and make better profits.
Opt for a method that is the quickest route to your target audience. For example, if you’re a lead generator for a company that offers solar panel installation services, the best way for you to reach out to your potential leads is to use the power of SEO.
Make your client’s company pages appear on top of search results – particularly for terms and phrases that the target audience is searching for. The pages that appear on top could be landing pages or blog posts, depending on the search intent of the targeted keyword.
But make sure you embed an engaging quiz or lead magnet on this page that collects lead information. So, once your target audience visits the page and they are hooked by it, they fill out the quiz and leave you valuable info which can help you nurture them and convert them into a paying customer.
For example, if you design a quiz that collects their email and acquires info about their budget for solar panel installation services, you can nurture them with extremely personalized emails (a.k.a., email marketing).
In this scenario, it’s not appropriate to opt for pay-per-call marketing to find leads. That’s because, with pay per call, you’re likely to have a low conversion rate and high cost per lead. Why? Well, cold calls can be annoying for your target audience. You will have to go the extra mile to make it truly effective.
Apart from that, your lead generation cost may also include the cost of lead generation software, the cost of hiring marketing and sales specialists, marketing costs, and advertising costs.
Summing up, you can calculate CPL in light of the seven factors mentioned above. Find out the industry averages and figure out a way to generate leads at the lowest possible costs without degrading quality.
As we explained earlier, the most efficient way to generate leads is to understand your audience to their core. Hop right into their shoes, and gather solid data about their pain points and interests.
Remember, your charges per lead mainly depend on the quality of leads you deliver + the revenue your client makes per lead.
Now, let’s talk about the game-changer we mentioned earlier…
LeadsHook: A Gateway to Spend Less Per Lead & Earn More
It would be really unfair to close this post without disclosing the one tool that can:
- Cut down your research time for all these factors from months to just 10 days
- Significantly lower your actual cost per conversion
- Improve the quality of your leads by 2X
Yep. There’s a tool that can help you achieve all of this and potentially DOUBLE your profits within this very month. It’s called LeadsHook. 😀
It can help you find the data you need in half the usual time via the Reverse Market Research method.
Note that the tool doesn’t implement the research method itself, rather it serves as your gateway to easy implementation.
Here’s what you can do with it:
And here’s an even more wonderful bit: you don’t even have to use the tool yourself! Get it all in our Done For You service. Place your order right now and allow us to set you up with a solid, robust lead generation engine in only 7-10 days.
It’s a small one-time fee you pay to SAVE TIME as well as the money-making opportunities that you’re losing as you ‘try to figure your way around’.
Seeing the HUGE conversions of our current clients – we’re confident that soon after using LeadsHook, your answer for how much to charge for a lead will touch the higher end of your respective industry.
No big claims, don’t worry. We offer a 100% MONEY-BACK guarantee. 🙂
We realize the risks and fears attached to the idea of an investment. And so, we don’t ask you to pay us even a single penny until you, too, are confident of your purchase.
Sign up for your free 14-day trial right now and witness how LeadsHook can literally help you locate where the gold lies in your target market. You’re free to keep all the valuable data you find during your trial period!