True Cost of Lead Generation: A Data-Driven Analysis

lead generation cost

Where Are Your Biggest
Lead Gen Leaks in 2023?

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Where Are Your Biggest
Lead Gen Leaks in 2023?

(Generate Your Report In Just 60 Seconds)

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If you’ve been in the PPL or lead gen business longer than 5 minutes…you’ll see this type of post a lot.

Another pay-per-lead ‘expert’ selling leads at bottom-of-the-barrel prices while claiming they are ultra-qualified.

Fact is…like politicians and answering questions…’ultra-qualified’ and ‘low-priced leads’ rarely go together.

And at LeadsHook, we know from our hundreds of users in the PPL game — chances are, they’re not giving you the full picture.

Maybe their campaign had a shorter life than a firework.

Or the leads could win the award in “The Worst Leads of the Year” category.

Or the cheap $4 dollar per lead cost was a one-off campaign where all the stars aligned…

Or maybe it’s just a big fat lie.

Either way, over the next few minutes, we’ll dive deep into the real costs of lead generation so you won’t believe these unrealistically low numbers again.

5 Types of Lead Generation Costs

Let’s start from the very beginning of setting up a lead gen funnel so we can explore every nook and cranny.

As understanding what makes up the big figure is essential for effective budget management and boosting ROI.

And even if you’ve been doing lead gen for a while, you may find some hidden costs you haven’t thought about yet.

1. Set-up Costs

Think of this as the activation cost. You need to get a few things in place to set up the basic structure of your lead generation campaign.

According to some online sources, these are the kind of numbers they’ll be looking at:

Component of Lead Gen Campaign Average Initial Cost 
Website$900 – $1200 
Landing page $25 – $3000
Stock Photos $1 – $1.5
Videos $800 – $1200
Graphics$10 – $600
Copy $1000 per page
Software tools (like CRM systems, email marketing tools, etc).$9 – $500 per user per month

Note: These are average initial costs if you hire freelancers or project-based workers to do the job. They are not set in stone.

If you have complex requirements and want top professionals to execute each aspect, you can expect to pay even more than the estimates above. 

Of course, you can reduce some of these costs by taking a DIY approach.

Like building the site with a preset theme, using Canva’s free version to design snazzy graphics yourself, or getting GPT to spit out your copy.

But be prepared for a steep learning curve if you’ve never done this work before.

2. Running Costs

Okay, so you’ve got the basic structure of your lead generation campaign all setup.

Next, you need to grab people’s attention and get them to your landing page, website, social media profile, newsletter, or any other type of lead capture page.

This stage might require you to invest in:

  • Pay-per-click (PPC) advertising: Setting up paid ads on social media platforms or other platforms to attract potential leads. 
  • Content creation: Using SEO to get organic traffic to your website.
  • Email marketing: Promoting your business to a list of emails you’ve collected or someone else’s list for a fee or revenue share.

Remember, as the name “Running Costs” suggests, these are not one-off payments. You’ll keep spending as long as the campaign is active.

And as Ad and traffic costs can be brutal, having foundational knowledge of media buying or outsourcing to a professional is a must. 

3. Personnel Costs

Most start in the lead-gen game as a lone wolf.

And if you have all the skill sets needed to run the campaign, you can make it work…

But if not, you’ll need help, ideally from maestros in each area.

For instance, you may need a marketing expert to draw more eyeballs to your campaign, or if you’re not selling leads to another company, a seasoned sales rep to help you close deals for those highly qualified leads.

Other roles you might need are:

  • Email copywriter
  • SEO Specialist
  • Paid advertising specialist/media buyer
  • Data analyst 
  • CRM manager
  • Compliance officer (if your data-providing tool isn’t law-compliant)
  • A/B testing specialist

Of course, this isn’t an exhaustive list, but the bottom line is this:

Paying for all these roles all adds up.

(And if you’re just looking to buy leads from a lead generation agency so you don’t have to hire anyone in house, you’ll also be paying for the privilege. )

4. Technology Costs

The basic tech stack, we filed under ‘set-up costs.’

However, you might need to invest in extra software or technological solutions to boost your lead generation efforts.

Some possible additions to your tech arsenal could be:

  • Analytics tools
  • Social media management tools
  • AI tools for editing, management, and idea generation
  • AI-powered chatbots
  • Lead scoring tools
  • Video editing software

Again, this list gives you just an idea.

There’s a wide range of technological solutions that you can use to enhance the performance of your lead-gen campaigns.

But passing on some of these expenses could mean you will struggle to outplay competitors, especially in saturated markets – which could limit conversions.

Or better yet, find a lead gen software that includes the features that will move the needle with the minimum cost. More about that later, though 😉

5. Hidden Costs 

In the world of lead generation, there are a couple of hidden costs that often slip under the radar but are just as valuable:

  • Time 
  • Strategy formulation

Even seasoned marketers tend to overlook these sometimes. But let me tell you — keeping a keen eye on these two can make a world of difference in your profit margins.

How so?

→ Time is the real opportunity cost if you fail to execute fast.

Meaning every day that passes without your campaign being live means potential profits are slipping away.

→ Strategy formulation isn’t something you pick up overnight. It’s a skill honed with experience. If strategy isn’t your strong suit, you’ll launch ineffective campaigns. — You’ll lose leads, time, AND the money you invested in the campaign. 

Collectively, that means you’d lose a good chunk of your hard-earned capital and potential revenue.

So when you hear these fantastical claims of low-cost, high-quality leads (unless they are lying of course) this is what they could be doing behind the scenes…

1. Moving the conversion pixel up – Manipulating data to give the illusion of bagging more leads or conversions than they actually are, simply by tweaking how they measure or count these conversions.

Like counting ad clicks instead of sale “conversion” events. This can lower the average cost per click. But ultimately, the figure would be meaningless because it doesn’t bring in any money.

Example: Someone spends $32 over seven days, bringing in one lead per day. Their cost per lead is ~$5. 

This spend isn’t substantial or scaleable, and it will be difficult to get results.

Another example is pictured below. It shows just under $1000 spent over 30 days, which naturally lowers the cost per lead.

But let’s be honest, that’s not a substantial budget for 30 days. Plus, with such a long campaign run on a shoestring budget, it’s hard to know if the leads pulled in are high-quality or low-quality.

These low numbers could have easily been achieved by manipulation.

2. Targeting low-cost countries – where the concerned business can hardly make a sale. 

Say you’re a US-based real estate business, and a lead gen professional gets you one-dollar leads from India.

It’s still lead generation, but practically useless for you — unless the acquired leads seriously consider relocating to the US in the next 12 months. 

The data manipulation techniques above can make a lead generator seem successful.

It’s the classic case of “all that glitters is not gold.”

But don’t be fooled. In reality, they’re churning out low-quality leads that are cheap but not worth buying or selling in the first place.

These are leads that end up being far more costly when you consider the cost per sale.

Talking of ‘Cost Per Sale,’ let me explain this other important but often overlooked factor in lead gen.

Say we have two lead gen cases:

Case 1 Case 2
Initial cost per lead: $4Initial cost per lead: $20
Conversion rate: 2%Conversion rate: 15%
Cost per conversion: $200Cost per conversion: $133

Putting this data into simpler words:

  • In case 1, you buy one lead for $4. This means 100 leads would cost $400. Since the conversion rate is 2% – only 2 out of 100 leads would convert. Now, divide your total spend by converted leads ($400 ÷ 2) — your cost per conversion is $200.
  • In case 2, you buy one lead for $20. This means 100 leads would cost $2000. But since the conversion rate is 15% – 15 out of 100 leads would convert. Dividing your total spend by converted leads ($2000 ÷ 15), you get $133.33 — so your cost per conversion is approximately $133.

Now, for Case 1, you need at least 50 contacts to make one successful sale. For Case 2, you only need approximately 6 contacts to make one sale.

💡 How to find the number of contacts?
  Divide 100 by your conversion rate figure. Example:
Case 1: 100 ÷ 2 = 50 
Case 2: 100 ÷ 15 = approx 6

Acquiring these contacts, phoning them, emailing them, or any other efforts to convert would cost you money — in the form of electricity, devices, team members, etc. 

Let’s assume lead gen efforts per contact cost you $20. That would mean:

  • Case 1: $20 x 50 = $1000 + $200 (cost per conversion) = $1200 total cost per sale
  • Case 2: $20 x 6 = $120 + $133 (cost per conversion) = $253 total cost per sale

Case 1 requires more resources for a successful conversion, while Case 2 converts with a smaller team and fewer resources.

This proves our initial point: Cheaper leads often lead to costlier sales, and vice versa.

I hope that clears the fog for you.

Now, the question is: how can you optimize these hidden costs? 

Master the skill. 

If you have the right skills and knowledge, you’ll make smarter decisions quicker. 

You’ll start off with a promising lead generation campaign and will only fine-tune it with the data you collect.

“But it takes time, and it’s so technical…Where do I start?…”

I understand the kind of thoughts blocking your way, and this is why I’ve designed an easier starting point for you:

Taking this quiz will give you a crystal-clear picture of where you currently stand as a lead gen and what you can do to step up the game. 

And by the way, if you haven’t formally studied business finance, you might want to go our Finance SOS course, which will guide you on how to grow your company’s revenue and valuation intelligently.

The course sums up the technicalities of intelligent money management. 

But before you head to that — there are a few more things you need to know:

What Affects Lead Generation Pricing?

You can control the cost of your lead generation campaign by being “smart” with the factors that affect lead gen pricing. These are:

1. Different Channels for Lead Generation

A channel is essentially a pathway to reach your target audience.

And the marketing world agrees the best channel for lead generation is relevant to your product type and pricing.

For instance, someone searching for a DIY door installation guide won’t be looking for you on LinkedIn. More likely, they’ll be searching for you on platforms like YouTube.

Similarly, if you sell a $4 item, there may be better choices than investing in outbound calls, as it won’t make financial sense.

So, ideally, let your market decide the perfect channel for you. 

Lead Generation options are:

Email Marketing

Email lead generation is common in B2B and B2C — but in slightly different ways.

In B2B, you send cold emails directly to prospects to secure business.

But in B2C, you’d have to do some proper lead gen before you send any emails. 

You need to be sure the recipients are willing to receive emails from you.

The general idea is to collect emails via opt-in forms, quizzes, pop-ups, gated content, or even games. 

And then, you send marketing messages to the collected emails – to further nurture and push them deeper into the sales funnel.

For an idea, the average cost of an email lead is about $53, with some ranging from $33 to $72.

The cost varies based on acquisition methods, where organic traffic is usually cheaper than paid traffic.

Plus, the costs associated with this channel can include the cost of an email marketing platform, email design, and email copy.

Content Marketing

Content marketing involves creating and distributing valuable content to attract leads. So, the costs include:

  • Content creation (e.g., blog posts, infographics, videos, etc.)
  • Distribution (e.g., promoting content through social media or paid ads)
  • Content management platforms, as well as resources spent on hiring content creators

On average, a lead generated via content marketing costs $92. It isn’t cheap, but it’s seen as a slow burner strategy. 

That’s because every piece of content is an asset that’ll keep bringing in leads once published. 

This has proved effective for businesses in education, publishing, software, and e-commerce, where typically, a client or customer will shop around before they make a buying decision.

But it may not be suitable for businesses that require immediate, high-intent lead generation (such as medical emergency services, locksmiths, legal services for criminal defense, etc.)

Social Media Advertising

Using social media ads to promote their company and generate leads. The costs of this channel include:

  • Social media management tools
  • Ad spend on platforms like Facebook or Instagram
  • Hiring media buyers

On average, a lead from a social media ad costs $58. This covers the costs from creating ad content to launching it on a social media platform to reach the target audience.

Search Engine Optimization (SEO)

SEO is an inexpensive, high-yielding channel for most businesses — but with lots of wait time.

You have to optimize your website to rank higher for certain keywords on Google, Bing, Yahoo, or other search engines. To achieve this, you’ll have to invest in:

  • SEO tools and platforms
  • SEO-trained staff member, a consultant, or agency 
  • SEO-optimized content creation

Although the process can take months (or years), the end product can be worth it.

You get a permanent supply of low-cost, high-quality leads through organic traffic. 

Initially, you might pay $31 per lead.

But as you continue to put out SEO-optimized content, the lead price will drop further below. 

It’s because SEO-optimized content is an asset, and more sales are generated the lead cost drops over time.

Learn how to master this channel in our Pay Per Lead SEO guide.

Pay-Per-Click (PPC) Advertising

PPC is when you run ads on platforms like Google Ads or Bing Ads and pay each time someone clicks on your ad.

It can be really powerful with its precision and quick results.

But compared to other lead-gen channels, PPC can be more technical. You ought to have a strong understanding of the specific keywords & demographics you want to target, the sophistication of your target audience, and your revenue goals.

Plus, this lead gen channel demands constant ongoing management and optimization otherwise, you could be wasting the ad spend

The costs of PPC advertising include ad spend, the fee of a PPC specialist, and the costs of PPC management platforms like Semrush, Optmyzr, and HubSpot (if you’re not using Google Ads).

Inbound Marketing

We’ve included this here; however, you can look at inbound marketing as a holistic approach combining several marketing tactics and channels. You can do it via social media channels, websites, email, etc.

The goal is to create valuable customer experiences by providing useful content and developing strong relationships.

Given that, the costs of inbound marketing include content creation, content management systems, and potentially CRM software.

2. Industry Impact on Lead Generation Costs

This factor is not a matter of choice. You rarely get to decide industry dynamics. 

But. You can make it play in your favor.

All you need is a good understanding of your industry and current trends. These will help you tackle the associated costs much more effectively:

Competition

The more competition, the higher the cost of lead generation. This is because many businesses are aiming for the same pool of people. 

This is particularly apparent in paid advertising, where more competition can drive up the cost per click or impression.

Target Audience

If your target audience is a niche or difficult-to-reach demographic, you may need to use specialized channels or more sophisticated strategies to generate leads, which can increase costs.

For example, say you offer customized surfboards for professional big-wave surfers. Your target audience consists of experienced surfers who tackle extreme waves. They are not a large or easily reachable demographic.

To reach this niche audience, you’ll need to distribute in-depth content about your custom surfboard’s unique features and performance in extreme conditions on specialized channels like:

  • Industry-specific forums
  • Big-wave surfing events
  • Exclusive online communities 

Given how difficult it is to reach them, you may be spending more per lead. 

Regulation 

If you work in heavily regulated industries like finance and healthcare, you might need to acquire legal permission or certification for running certain types of ads or collecting certain types of lead info.

For example:

  • If you sell food items, you need ISO certification before you advertise.
  • If you own a real estate biz, you’ll need a license to operate and may need to guarantee that you won’t violate local property laws.
  • If your company offers health-related products like vitamin supplements, you need to comply with laws like HIPAA when advertising medical services and collecting data.

Getting these permissions and maintaining them can add to your overall business cost 

Value of a Sale

High-end products/services (such as B2B software or luxury goods) have a higher lifetime customer value. And that’s a complex subject on its own.

But let’s break it down.

Say you offer an $800 project management tool. Your customers will rely on this tool for their daily operations, so their LTV is high. 

That’s because they’ll be shelling out $800 not just once but month after month!

Now, imagine you sell high-end handbags. Even though it’s a one-time purchase, the customer still has a high LTV. They’re likely to either recommend your product to others or become repeat customers themselves.

However, acquiring these high LTV customers is no walk in the park. It takes a lot of effort to fully convince them that YOU are the one they’ve been looking for —- which spikes the per-lead price quite a bit.

Sales Cycle

Industries like e-ticketing or fast food naturally have a shorter sales cycle, while others like real estate and financial services have a longer one. 

A longer sales cycle implies a higher investment per lead due to more touchpoints, emails, calls, messages, content, etc. 

But typically, industries with longer sales cycles also have a high expected return per sale and therefore higher lead cost.

As a lead gen, you can use your research, analytical, and strategy skills to shorten the sales cycle — as much as possible. And the refining of the sales cycle really begins with reverse market research.

Some LeadsHook users flipped the game with this approach; hear them out yourself:

Quality leads → shorter sales cycle!

Technology Change

Changes in technology can also impact lead generation costs. 

As more advanced solutions pop up every other day, businesses may need to discard old methods and transition to new ones. 

This switch requires investment in both the technology itself and the learning curve associated with it.

For example, Google’s recent announcement that it would disable third-party cookies for 1% of Chrome users means companies must seek new ways of reaching potential customers. 

While server-side tracking might be a solution, it could also necessitate changes in lead generation practices and costs. 

Rapid iOS updates are another example of how technological changes can impact lead generation costs.

Quality vs Quantity: The Lead Paradox 

Lead gen community faces another big dilemma when it comes to optimizing lead generation costs: are 2 expensive high-quality leads REALLY better than 100 sub-quality leads?

Practically speaking, it depends on your business goals. 

New businesses that prioritize attention over sales may benefit from a higher quantity of leads. 

The same goes for businesses aiming for one-time sales of low-cost products. 

In that case, casting a wide net may work. Even if you don’t reel in a ton of sales, you’ll at least garner attention.

But for businesses that aim for a stable, growing revenue and loyal customer base —- quality is the only way.

Quality leads are those who show a strong interest in your product. They match your ideal customer profile perfectly. And they are most likely to convert. 

Attracting these types of people can be expensive. You’ll need to invest a lot in highly personalized marketing efforts — which pushes up the cost per qualified lead (as compared to a non-qualified one).

In the long run, these leads also offer a higher return on investment. They have greater potential to become repeat customers or brand advocates.

Now, in lead gen terminology, quantity leads are often associated with MQLs, and quality leads are associated with SQLs.

  • MQL (Marketing Qualified Lead): An MQL is someone who has interacted with your marketing material and shown interest in your product. But they might not be ready to buy just yet. They’re like potential customers who need a bit more attention.
  • SQL (Sales Qualified Lead): An SQL is a prospect who is both interested and ready to make a purchase. They’re more likely to become paying customers soon.

Balancing the right mix of MQLs and SQLs is the key to a stable, growing revenue. And ultimately, higher ROI.

Determining Your Cost Per Lead 

If you are in the Lead Gen business in our guide, How much to charge per lead, we’ve outlined how to calculate what to charge per lead.

To give you a quick overview here:

  • Cost per lead is the dollar amount you spend to acquire a lead.
  • You can determine your cost per lead by considering these factors:
    • Industry
    • Competition
    • Quality and size of the target audience
    • Accessibility to the target audience
    • Country
    • Price of product/service
    • Method of lead generation

Learn how each factor impacts the cost over here.

And here’s the formula to quickly calculate the cost per lead:

What Is a Good Cost Per Lead?

A good cost per lead falls below your gross profit per sale.

For instance, if you make a profit of $2000 per sale (after deducting costs and expenses), your lead cost should be less than that.

For subscription-based products/services, a good cost per lead can be determined by considering the average deal size or customer lifetime value (LTV). 

Suppose your customers have an average LTV of $5000, and your gross profit is 50% — that means you make $2500 per customer.

In this scenario, if your conversion rate is 10%, a cost per lead less than $250 would be good.

Note, that the average cost per lead varies from $20 to $500 —- depending on the industry, marketing channel, competition, and other factors.

For some $20 could be a good CPL, and $200 for some. The key is to monitor CPL in the context of your business objectives and adjust your lead generation strategy as needed to achieve a profitable outcome.

Tracking and Measuring Lead Generation Success

Utilize the analytics tools linked with your lead generation campaign to track its progress. We recommend assessing success based on the following KPIs:

  • Attribution: This represents the sequence of a lead’s interactions with your business and can help map the buyer’s journey.
  • Average Lead Value: The average monetary worth of each lead in your lead generation efforts.
  • Customer Lifetime Value (CLTV): This is the total revenue a customer is expected to generate over the course of their relationship with your business.
  • Customer Acquisition Cost (CAC): The cost incurred to acquire a new customer via your lead generation efforts.
  • Lead Conversion Rate: This is the percentage of leads successfully converting into paying customers.
  • Return on Ad Spend (ROAS): This measures the profitability of your advertising campaigns by comparing ad expenditure to generated revenue.
  • Cost Per Lead (CPL): The cost of acquiring each lead through your marketing efforts.
  • Time to Convert: This is the duration it takes for a lead to progress from the initial interaction to becoming a customer.
  • Lead Score: This involves assigning a numerical value to leads based on their likelihood to convert or become customers.

These KPIs provide honest insights about the effectiveness of your lead generation campaign. Monitor these metrics closely and focus on improving them.

Quiz time: What’s your lead gen IQ?

Several factors contribute to the cost of lead generation. The cost is unique to each business.

There isn’t and cannot be a one-size-fits-all solution to reduce costs. 

And there is also a certain limit to how cheap a lead can be. 

So, my advice to all lead professionals is to stop running after cheap leads. 

Earlier in your journey, it’s difficult to see the hidden costs and trade-offs. If you base your campaigns solely on price, you might make suboptimal decisions. 

You could throw away potentially successful campaigns simply because the price tag frightened you, despite the potential for high ROI.

You also risk making poor choices because you are unaware of the associated hidden costs.

So first, figure out your lead gen goals. Focus on what you want to achieve. Carve yourself a logical path to achieve these goals. 

Once your plan is in action, start fine-tuning it to reduce the distance between yourself and your target customer. This will automatically lower the cost to the lowest possible.

But how do you devise that logical path? How do you fine-tune it for fully optimized, high-return CPL? It’s time to get all your answers, starting with this Lead Gen IQ quiz.

Find out which stage of lead mastery you stand in currently and what you can do to up your game…

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Article By

Romaisa Abbas

I’m a technical writer specializing in B2B SaaS. Other than tea, I’m mostly driven by my passion for innovation — if I’m not writing or studying, you’d most likely find me researching different industry subjects or on LinkedIn.

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