Learn B2B SaaS Marketing

What are the Differences Between CPC, CPL, and CPA?

by 

Lauren O'Bryan

Last updated: July 31st, 2024

In the competitive world of B2B SaaS marketing, effectively measuring and reporting on campaign performance is key to driving business growth. Cost Per Click (CPC), Cost Per Lead (CPL), and Cost Per Action (CPA) are three critical metrics that provide insights into different stages of the customer journey, but what exactly do they represent and what’s the difference between them?

Let’s define each of these metrics, explain how they differ from one another, and then see how you can use them to communicate results effectively to decision-makers.

What is CPC, CPL, and CPA?

CPC, CPL, and CPA are key metrics for optimizing marketing spend and maximizing the ROI in your marketing strategy.

Cost per Click (CPC)

Cost per click is the amount an advertiser pays for every click on their ad. This payment model operates on an auction-based system where advertisers set a maximum bid, but they often end up paying less. Because the advertiser only pays when a user clicks on their ad, CPC is known as a cost-effective payment model.

Cost per Lead (CPL)

Cost per lead is the set amount an advertiser pays for every lead generated. Naturally, this payment model is ideal for those building a high-value contact list. Although it’s more expensive, these leads are highly likely to convert in the future, making it a worthwhile expense.

Cost per Action (CPA)

Cost per action is when advertisers only pay when a user makes a specified action. The action can be anything from completing a sign-up form, downloading a lead magnet, or clicking on a link. The flexibility of this payment model makes it a popular choice.

How Do They Differ?

While these payment models share some similarities, they also have key differences that set them apart, so let’s compare them.

CPC vs. CPL

The core difference between cost per click and cost per lead is that CPL takes the action a little further than just clicking on the ad. The user has to engage and convert into a lead before the advertiser pays, whereas with CPC, the advertiser pays when a user clicks on the ad, regardless of what happens next.

CPA vs. CPC

Cost per action and cost per click are more similar because the advertiser pays when users click on an ad. However, in the CPA payment model, the action can be more than just clicking on an ad and can also include making a purchase or submitting contact details. This model is more focused on the effectiveness of the ad in driving meaningful engagement.

CPL vs. CPA

With cost per lead and cost per action, the difference is quite clear. CPL is a long-term investment because the advertiser pays to gain a lead, whereas CPA is a more immediate and result-oriented model because the advertiser pays only when a user performs the specified action.

Understanding These Marketing Metrics

When evaluating marketing campaigns, CPC, CPL, and CPA are used to determine how much ad spend it takes to get the desired result, whether that’s clicks, new leads, or paying customers. But when you dig deeper into these metrics, you can pull together a lot more information.

Some think that having a high CPC is a bad thing, but it can simply mean that your ads are reaching a high-intent audience. What matters then is whether those clicks convert into actual sales or leads.

Then there’s CPL, which measures the cost of acquiring a new lead, not necessarily a new customer. So, a good CPL should be lower than the profit you make from each lead. This means you can afford a high CPL, but only if the leads eventually become high-paying customers.

Finally, CPA highlights the cost-effectiveness of your campaign. It essentially tells you if you’re breaking even or making a profit by comparing your overall ad spend to the revenue generated.

As you can see, these metrics don’t just tell you how effective your marketing campaigns are but they also help to assess business profitability and develop future budgets.

Budgeting Correctly: Metrics, Forecasting and Payback Periods

Understanding all your marketing metrics is important, but some metrics hold greater weight than others, particularly when it comes to budget and decision-making.

CPL is an important marketing efficiency metric. Of course, it’s a great overall indicator of campaign success, but it can also help marketers optimize ad spend and increase high-value leads. Focusing on CPL allows marketers to make significant improvements and build accurate marketing forecasts.

Forecasting

Creating accurate marketing forecasts is crucial to setting achievable goals and securing the necessary budget to achieve those goals. Marketing funnel forecasts rely on sales and marketing data coming together. Unfortunately, many marketers put too much weight on leads while neglecting other important sales and marketing metrics like ROI and CPL.

When we develop marketing forecasts, we look at efficiency metrics, with CPL being a core metric we calculate.

Payback Periods

A payback period shows how long it takes to earn back the cost of acquiring one customer. It is the best indicator of business profitability. A customer’s lifetime value might exceed the acquisition cost, but a long payback period could be detrimental to your business.

In short, the payback period allows you to see if you’re overspending on customer acquisition, highlights customer churn problems, and helps set sustainable business performance goals. Understanding your payback period greatly improves financial risk management and provides you with much-needed figures when seeking capital or additional budget.

A good payback period will depend on the business size and funding source. Due to their funding structure, VC-backed SaaS businesses can afford to take the risk and have longer payback periods. Bootstrapped SaaS startups, on the other hand, should aim for a much shorter payback period.

In the SaaS industry, retaining customers by keeping them satisfied is crucial, as acquiring new customers from competitors is more challenging.

Focus on Leads to Scale Ads

Scaling is essential for the survival of a SaaS business, but it’s unwise to think that pouring more money towards ad spend will guarantee greater gains. More often than not, this approach leads to higher costs with minimal returns. We recommend focusing on lead quality when starting to scale your business.

To improve lead quality, you need to have your buyer personas clearly defined. Then, you can systematically qualify and manage leads.

Once you attract quality leads, you can increase lead volume and invest more in campaigns and remarketing efforts. A higher volume of right-fit leads will help you optimize your CPA, as it’s a reliable metric for assessing lead quality. To optimize CPA, follow these steps:

• Remove bot traffic and users who don’t engage to focus on quality traffic.
• Develop separate funnels for those that indicate a stronger desire to convert.
• Split-test your ad copy to find the most effective messaging.
• Implement conversion rate optimization strategies.

Wrapping Up

If you’re at the beginning of your business growth journey, it will help to establish a baseline. We recommend taking our SaaS scalability score self-assessment to see how your SaaS currently stacks up against the competition. This assessment will provide insights into how well you’re currently attracting, engaging, and converting customers. Using these insights, along with your business performance metrics, you can develop and implement a strategic plan to drive future growth.