Breakeven Cost-per-Lead (CPL) ARE YOU USING DIGITAL ADVERTISING TO DRIVE LEADS FOR YOUR PROGRAM? DO YOU KNOW THE TRUE ROI OF YOUR DIGITAL ADVERTISING CAMPAIGNS? THIS EBOOK WALKS THROUGH HOW TO CALCULATE AND APPLY A METRIC CALLED BREAKEVEN COST-PER-LEAD (CPL) TO DETERMINE IF YOUR CAMPAIGNS ARE YIELDING A POSITIVE RETURN.
Contents 1 2 3 The Problem with KPIs The Digital Advertising ROI Benchmark Lifetime Value of an Enrolled Student 4 5 6 7 8 Lead-to-Enrollment Rate Building the Equation The Value of One Lead Calculating ROI An Exercise for Education Ready to get started? We can help! Contact us for more information on our Digital Advertising services.
1The PRoblem with KPIs In the world of digital advertising, there is a seemingly countless number of KPIs to track, analyze and benchmark. The amount of available data can be overwhelming to the point where it is difficult to determine what is most relevant for your program. What should our click-through rate be? Is this a typical cost per click? What about our conversion rate is that normal? These KPI-related questions are important to understanding the health of your campaigns. KPIs like cost-per-click (CPC) and conversion rate also have a direct effect on your campaign s ROI. To pull in a sports analogy, only looking at metrics like click-through-rate (CTR), cost-per-click (CPC) and Cost-per-Lead (CPL) is like asking how many free-throw attempts, fouls and blocked shots a basketball team had without asking about the final score. These statistics absolutely have a direct impact on the outcome of the game, but do not actually tell us if a team won. So what is the digital advertising equivalent of asking who won the game? The answer would be what is the return-on-investment for our campaign? Of course, this is not a simple question to answer, but it can be navigated and we are here to help.
2The Digital Advertising ROI Benchmark START BY CALCULATING A METRIC THAT WE REFER TO AS BREAKEVEN COST-PER-LEAD OR BREAKEVEN CPL. By calculating Breakeven Cost-per-Lead, you will have a benchmark to measure against your average Cost-per-Lead to determine if your campaigns are yielding a positive return. Here is the equation for Breakeven CPL: INQUIRE APPLY ENROLL BREAKEVEN COST-PER-LEAD = AVERAGE LIFETIME VALUE OF 1 ENROLLED STUDENT (1 / LEAD-TO-ENROLLMENT RATE)
3Lifetime value of an enrolled student Let s take a closer look at each variable of the equation: Average Lifetime Value of One Enrolled Student Perhaps the most difficult piece of this equation is to define the mysterious average lifetime value of one enrolled student. The best method to calculate this figure varies by program, but a good place to start is: AVERAGE LIFETIME VALUE OF 1 ENROLLED STUDENT = AVERAGE REVENUE FROM TUITION AND FEES + AVERAGE LIFETIME REVENUE FROM ALUMNI DONATIONS Let s say we are recruiting for an MBA program, and the average total tuition paid by one enrolled student is $30,000 (after factoring in financial aid). After looking at donations from your MBA alumni from the last five years and adjusting for outliers, you calculate an average lifetime donation per alumnus of $2,500. Pareto s principle tells us that roughly 80% of your donations will come from 20% of your alumni base, so we recommend adjusting for the outliers to provide a conservative estimate of Breakeven CPL.
4Lead-to-enrollment rate Lead-to-Enrollment Rate The second variable to calculate is your program s lead to enrollment rate for digital advertising leads: # OF ENROLLED STUDENTS # OF DIGITAL LEADS Keep in mind that it may take several years for a prospect that came in from a digital ad to decide to enroll in your program. In fact, a longer consideration process is quite common for digital lead pools. With this in mind, remember that your estimate of Breakeven Cost-per-Lead should not be tied to a fiscal year it is a calculation of lifetime value, and should be recalculated often as you collect more data. Lead-to-enrollment rates will vary quite a bit depending on the nature of your program (more expensive and longer programs will naturally see a lower lead-to-enrollment rate) and your recruitment strategy, but 3-7% is a common range. For the sake of our hypothetical MBA program, let s use a 5% lead-to-enrollment rate. In other words - out of every 100 leads you receive from digital advertising, you see 5 enrollments on average. By using the function 1/Lead-to-Enrollment Rate, we are effectively calculating the number of digital leads expected to yield one enrolled student.
5Building the Equation Putting It All Together Now that we know our estimated Lifetime Value of One Enrolled Student and our Lead-to- Enrollment Rate, we can calculate Breakeven Cost-per-Lead: $30,000 IN REVENUE FROM TUITION + $2,500 IN REVENUE FROM ALUMNI DONATIONS $32,500 IN REVENUE (1 / 5% LEAD TO ENROLLMENT RATE) 20 LEADS REQUIRED FOR 1 ENROLLED STUDENT BREAKEVEN COST-PER-LEAD = $1,625 To break even on a digital advertising campaign for our MBA program, we should maintain a cost per lead of no greater than $1,625. A true Cost-per-Lead should take into consideration both direct advertising dollars and the cost of building and maintaining the campaign.
6The value of one lead LET'S EXPLORE FURTHER. In terms of man-hours, let s say it costs $12,000 to build one campaign and $2,000 per month to manage and optimize the campaign. Over a 12-month advertising cycle, you see about 20 leads per month at an average cost-per-lead of $250 (this is in-line with industry benchmarks). The cost of campaign development and management spread over the 12-months leaves an incremental $3,000 per month to take into consideration or $150 per lead (at 20 leads per month). If we see 20 leads per month, our true cost per lead is about $400 ($250 in advertising spend + $150 in campaign development and management). This leaves us with an incremental value of $1,225 for each digital advertising lead: $1,625 BREAKEVEN COST-PER-LEAD $400 COST PER LEAD = $1,225 INCREMENTAL VALUE OF ONE LEAD
7 Calculating ROI Now that we know Breakeven Cost-per-Lead for our MBA program, we can use this metric to benchmark against Cost-per-Lead results each month to ensure campaigns are obtaining a positive ROI. By factoring in the cost of campaign development and management, we are also armed with the most important benchmark for your campaign: THE MAXIMUM COST-PER-LEAD FROM AD SPEND NEEDED TO MAINTAIN A POSITIVE ROI. Assuming we stay in the range of 10-20 leads per month, we can calculate this benchmark with the following equation: $1,625 BREAKEVEN COST-PER-LEAD $150-300 COST OF DEVELOPMENT & MANAGEMENT FOR ONE LEAD (FOR 10-20 LEADS) = $1,325-1,475 MAXIMUM COST-PER- LEAD (FROM AD SPEND) TO MAINTAIN POSITIVE ROI If your Average CPL stays below the $1,325-$1,475 range (again, assuming a $32,500 lifetime value, 5% lead-to-enrollment rate over 12 months and between 10-20 leads per month), your campaign is generating a positive ROI. Another approach to benchmark ROI is to divide the sum of ad spend and campaign development and management by the Breakeven Cost-per-Lead to find the minimum number of leads to break even: Total Ad Spend: $60,000 Total Development & Management Cost: $36,000 Total Cost: $96,000 To break even on this campaign, we will need to generate at least 60 leads (or 5 leads per month) over 12 months. $96,000 / $1,625 BREAKEVEN CPL ~ 60 LEADS
8 An exercise for education Take this exercise in ROI and run with it to help monitor the profitability of your digital advertising campaigns. Find Your Breakeven Cost-per-Lead: What is your average revenue from tuition and fees for one student? X = What is the estimated revenue from alumni donations for one student? Y = What is your lead-to-enrollment rate (# enrolled students / # of leads)? Z = BREAKEVEN COST-PER-LEAD Find the Incremental Value of One Lead and the Maximum Cost-per-Lead to Maintain a Positive ROI: What was your Breakeven Cost-per-Lead from the first exercise? A = Over the course of 12 months, how much in total do you invest in campaign development and management? Divide this number by 12. B = How many digital leads to you typically see per month? C = What is your average Cost-per-Lead (from digital ad spend)? D = INCREMENTAL VALUE OF ONE LEAD MAXIMUM COST-PER- LEAD TO MAINTAIN POSITIVE ROI What is your total ad spend budget for 12 months? R = What is your total budget for campaign implementation and management for 12 months? S = What is your Breakeven Cost-per-Lead? T = MINIMUM LEADS TO BREAK EVEN