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Cost Per Lead = (Total Ad Costs) / (# Leads Generated)
Total Ad Costs = Direct Ad Costs + Indirect Ad Costs
Direct Ad Costs = All Ad Fees + Design Costs + Tracking Costs + Agency Fees
Indirect Ad Costs = Administrative Overhead = ($/hr) x (# hrs)
Notes: Could leave out Indirect costs to make the math simpler, but more complex campaigns will cost you more. Over time you should definitely try to account for these costs so you can accurately compare simple and complex ad types!
Cost Per Enrollment = (Total Ad Costs + Admissions Costs) / (# Enrollments)
Admissions Costs = (Admissions Costs Per Lead) x (# Leads)
Admissions Costs Per Lead = Print Costs + Postage + Email + Administrative Overhead
Notes: It is essential that you attempt to account for admissions costs so that you can quantify the difference between good leads and bad leads.
Marketing ROI = (Revenue – Cost)/Cost = (Revenue/Cost)-1
= (Revenue Per Enrollment / Cost Per Enrollment) – 1
Revenue Per Enrollment = Average revenue generated from all starts
Notes : The only way for this number to be accurate would be to look back after several years, which is unrealistic. This number can be very rough, but it should account for your average number of dropouts. You might want to classify enrollments into various categories (1 course, 2yr, 4yr, etc.) to get a more accurate sense of revenue potential.
Comparing Metrics:
- ROI is the most comprehensive of these metrics because it includes both revenue and costs.
- Cost Per Enrollment is a good way to compare two different advertising options, but it falls short when helping you make long-term strategic decisions.
- Cost Per Lead may require a lot of hard work, in order to calculate it, but because it does not account for lead quality it is much less useful than Cost Per Enrollment.
Some Examples (revised 1/24/05):
- In order to illustrate these three metrics we have created some examples using very rough numbers.
- The numbers in these examples were chosen to show potential differences between the metrics, but not necessarily differences between the ad types.
Assumptions:
- Admissions costs for our fictional college average $50 per lead
- Enrollments generate an average of $10,000, after accounting for dropouts
Example 1 = Purchase 1000 clicks @ $2.50 CPC on 20 terms on a PPC Search Engine
Data:
- It took 10 hours for a staff member to setup and monitor the campaign at a rough cost of $50 per hour
- 20 new landing pages (built by marketing) and a form (built by admissions) were used to efficiently capture and convert the traffic
- The landing pages took 100 hours of time to build, including contractors, for an estimated cost of $7,500 (but since the plan is to generate 1,250 leads this year we will divide that cost out, and attribute $750 to this campaign)
- Campaign generated 125 leads and 3 enrollments (2.4% conversion)
Total Ad Costs = $500 setup + $750 landing pages + $2,500 ad costs = $3,750
Cost Per Lead = $3,750 / 125 leads = $30/lead
Admissions Costs = $50 x 125 = $6,250
Cost Per Enrollment = ($3,750 + $6,250) / 3 = $3,333
ROI = ($10,000/$3,333) - 1 = 2 = 200%
Example 2 = Purchase 100 leads @ $25 CPL from a performance-based directory
Data:
- It took 5 hours for a staff member to setup and monitor the campaign at a rough cost of $50 per hour
- Campaign generated 3 enrollments (3.0% conversion)
Total Ad Costs = $250 setup + $2,500 lead costs = $2,750
Cost Per Lead = $2,750 / 100 leads = $27.50/lead
Admissions Costs = $50 x 100 = $5,000
Cost Per Enrollment = ($2,750 + $5,000) / 3 = $2,583
ROI = ($10,000/$2,583) - 1 = 2.87 = 287%
Reviewing These Examples:
- If you did not calculate hidden and indirect costs of each add type you might have thought that total ad costs were $25 for #2 and $20 for #1 ($2,500/125). While difficult to account for these costs, they can clearly make a major difference.
- Having more leads is not necessarily better. #1 generated 25% more leads, but when you account for the admissions costs it may not be better to have more lower-quality leads.
- Lead conversion percent is not as valuable as cost per enrollment because it does not account for any costs. In this example both seem like comparable metrics, but cost per enrollement gives more insight into what is financially viable.
- Comparing two enrollment costs is not enough to tell you how good they really are in comparison to each other. Example #2 cost $750 less per enrollment (22.5% cheaper), but you can’t really tell how important that is without ROI. You really need to calculate ROI so that you can do a fair comparison, to find out that #2 is actually 43.5% more efficient.
- For long-term planning, you need to be careful calculating marketing ROI and neglecting other institutional costs (which can be significant). You can either find a target marketing ROI that you need to be OVER for a campaign to be feasible, or you can add other costs to find a true institutional ROI. This fictional college may need a marketing ROI of at least 200% to cover other institutional costs. In that case, example #1 is just breaking even while #2 is about 87% ROI.
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Calculating Metrics
