How to compare the cost of sales leads
What is a sales lead worth to your property business? It could be anywhere between zero and thousands of Euros.
Now, more than ever, estate agents and developers need leads which convert to sales – and leave room for profit. However, comparing cost-per-lead, cost-per-click, cost-per-impression and flat-rate advertising is no easy task.
How can you measure and compare the true costs of lead generation?
Comparing conversion ratios
CPL / CPA – ‘Cost Per Lead’ or ‘Cost Per Acquisition’ is simple to measure because you pay directly for the thing you want – a sales lead. Critical numbers here are the cost and quantity of leads you can purchase. A typical Cost Per Lead is € 13.
CPC – One example of ‘Cost Per Click’ is Google Adsense. Even though a typical Cost Per Click is roughly € 0.50, you must factor in the conversion rate of click to lead – often as low as 2%, providing a Cost Per Lead of € 25.
CPM – Cost Per 1,000 Impressions (one ‘impression’ is counted every time your advert is displayed). Idealista.com, for example, charges € 14 per 1,000 impressions of a banner advert. In this case two conversion ratios apply: Impression to click, and click to lead. Optimistically, just 2% of impressions will produce a click, and with a 2% click to lead ratio, this produces a Cost Per Lead of € 35.
Flat rate – In this model, you pay a fixed fee in exchange for as many leads as the medium can produce. Estate agents advertising on Kyero.com receive, on average, 500 leads and spend € 2,500 each year – producing a Cost Per Lead of € 5.
Measuring Cost Per Sale
Cost Per Lead is often quoted, but it’s Cost Per Sale that’s really important. This is the only way to gauge if a particular lead source will leave you with a sufficient gross margin. This example uses averages from Kyero.com.
- Cost of 12 month campaign: € 2,500
Number of leads generated: 500 - How many are qualified buyers? 1:10
Number of qualified buyers: 50 (500/10) - How many will make an inspection trip? 1:5
Number of inspection trips: 10 (50/5) - How many will buy? 1:5
Number of sales: 2 (10/5) - Number of sales: 2
Cost of leads: € 2,500
Cost Per Sale: € 1,250
Sales commission: € 10,000
Gross margin: € 8,750, or 87.5%
Comparing Cost Per Sale
Working back from the above example, how much would each lead generation method cost to receive 250 leads, make one sale and gross € 10,000 in sales commission?
| Cost Per Lead | Cost Per Sale | |
| 1. CPL | € 13 | € 3,250 |
| 2. CPC | € 25 | € 6,250 |
| 3. CPM | € 35 | € 8,750 |
| 4. Kyero | € 5 | € 1,250 |
What is surprising is the high Cost Per Sale of the ‘low-cost’ CPC and CPM methods – mainly due to their poor conversion ratios.
If your business can afford the CPL model, this is preferable – as long as there is sufficient profit remaining after the Cost Per Sale is subtracted from the sales commission.
Flat rate advertising potentially offers the lowest cost per sale – as long as a sufficient quantity of leads is available at an affordable rate.
Summary
The question of lead quality versus quantity only makes sense at the end of a marketing campaign. It’s virtually impossible to judge lead quality in advance of conducting a marketing trial.
In trialling CPC and CPM methods, many advertisers report poor results. The rising cost of clicks and poor conversion ratios often make these ‘low-cost’ methods ineffective and ultimately, expensive.
Similarly, when trialling CPL sources, sufficient budget must be allocated in advance to purchase at least the number of leads anticipated to produce one property sale.
Kyero.com produces 25,000 sales leads every month. A comprehensive 6 month marketing trial costs just € 797.
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