In this article you’ll learn how to never run an unprofitable advertising campaign for your fitness business again, by calculating your Target Cost Per Lead (CPL).
Before we dive into this, let’s set the scene with a metaphor…
Imagine walking into a shoe shop with no pre-existing idea of what pair of shoes you want or how much they should cost. You only know how much you feel comfortable spending, and that you want the best possible deal.
You pay £150 for a new pair of shoes. They’re comfy, trendy and they fit well. Happy days.
You leave the store, walk round the corner and see the exact same pair of shoes selling for £90.
You immediately Google this pair of shoes and find that, sure enough, the average price is £90.
You turn around, get your refund and end up £60 better off.
You’re slightly frustrated with yourself, but you’re happy that you’ve ended up paying what you should have for the shoes.
Now you walk further down the street and see a very similar pair of shoes selling for just £15.
Previously you might have been outraged by this, but now you know exactly what your shoes are worth and, based on this information, you know that these £15 shoes are likely a knock-off brand. You’re uninterested.
You live happily ever after.
Now, let’s apply this to your paid advertising.
Most fitness professionals will set up their campaign knowing how much they feel comfortable spending AND that they want the best possible bang for their buck BUT without knowing what they *should* actually spend for their desired outcome.
This leads to countless “failed” campaigns and wasted cash.
You turn the ads off when you begin to feel uneasy about what you’ve spent so far, but this uneasiness actually stems from simply not having any reasonable expectations or benchmarks.
This missing ingredient is your “Target CPL” (Cost Per Lead).
Your CPL refers to the amount you spend on Ads for each new lead they generate.
And, despite popular belief, your Target CPL isn’t simply “as low as possible”.
Low in relation to what?
In fact, your Target CPL is actually based on these three factors:
- Average lifetime value of customers (how much they pay you over their lifetime as a customer)
- Average profit from these customers, as a % (this will give you the average lifetime profit per customer)
- Average closing rate (what % convert from lead to customer?)
This information will dictate how much we should be aiming to spend for each new lead we generate, whilst remaining profitable.
The formula we want is as follows:
Average Lifetime Value x 0.75 (assuming a 75% profit margin — adjust this as needed)
If our average lifetime value is £1000, then our average lifetime profit is £750.
We then want to multiply this by our average closing rate. Assume that’s 30%.
Note: your closing rate is the percentage of leads that become customers. If 3 leads out of 10 end up paying you, that’s a 30% close rate.
Now we’ve got £225.
(This is how much each lead is technically worth to your business… ie each lead we generate is as though £225 is hitting the bank)
Now, finally, and for this example, we want to multiply this figure by 0.5.
This will mean that every lead we generate and close will pay for its own advertising twice.
This CPL would be £112.50.
We could even multiply our lead value (£225) by 0.25, which would mean that every lead we generate and close will pay for its own advertising four times.
This CPL would be £56.25.
Keeping your CPL between this range will mean that your advertising will always be profitable and scalable.
If you’ve not followed the maths here, don’t worry… we’ve put together this handy calculator which will crunch the numbers for you.
Now, of course, getting your CPL even lower than these figures will always be a bonus. Just make sure that your close rate (lead to sale) doesn’t drop below a % you’re happy with.
Imagine buying your £90 shoes for £70. You’ll want to make sure there’s no issues with the quality but, if not, you’ll be happy to have found a great deal!
A drop in conversion rate would usually suggest a decrease in lead quality (unless something has changed with the way you’re selling)
This is testament to the fact that a lower CPL isn’t always better, and that the lowest CPL isn’t always desirable.
Aim for a CPL that’s both profitable and scalable for your particular offer and you’ll always win. Your advertising will always pay for itself. It will technically be free!
This concludes the article. I really hope you’ve found value in it for your business’ advertising. This is one of the most fundamental practises we incorporate into the service we deliver for our clients.
If we didn’t do this, we’d be running into every new campaign being totally blind. It’d be pure guesswork and very difficult to gauge actual success.
I highly recommend you spend a little extra time ahead of launching your next campaign and figure out what your Target CPL will be.
Then you can monitor your actual CPL with confidence.
To your success,
Jonah @ FITMEDIA