What Is Cost per Acquisition? The Marketer’s Guide to CPA

Cost Per Acquisition is a powerful advertising metric that tells you how much money you are spending to acquire a customer. CPA helps marketers measure the success of their advertising campaigns and keeps them aware of not paying more to acquire new customers.

What is Cost Per Acquisition?

CPA is the average amount of money spent to acquire one customer. It is calculated by dividing the total cost of a campaign by the number of conversions. If you spend $1000 on an advertising campaign and get 10 conversions, the CPA will be 1000/10 = $100.

What is Customer Acquisition Cost?

Customer Acquisition Cost (CAC) is the amount of money spent to acquire one paying customer. It is calculated by dividing the total cost of a campaign by the number of paying customers generated through the campaign.

Why Is CPA Important?

As an online marketer, how do you know whether the online advertising campaign you are running is getting success or not? CPA is important for four reasons.

CPA is important because it measures success the success of ad campaigns in a very efficient way. Cost Per Acquisition serves as a financial metric that directly measures the revenue impact of marketing campaigns. While conversion rates are a significant indicator of marketing success, CPA provides the business perspective to measure campaign success.

The payment for the advertisement being based on completed sales also gives you better control of tracking and maximizing your return on investment across different marketing channels you have employed.  Tracking CPA ensures that you invest in the most cost-effective channels while it helps you gauge the success of your various marketing efforts.

Cost per acquisition also allows advertisers to control advertising costs for their marketing objectives. It is designed to only charge for the advertisement when a sale is completed.

Cost Per acquisition can be quite versatile in use, as it can be applied to several paid marketing mediums. These include PPC, Affiliate, Display, Social Media, and Content Marketing. It can also be used for eCommerce SEO, email, and some other platforms.

Where Is CPA Used?

Cost per acquisition is typically used in different paid marketing mediums. Some of them are the following:

1. Pay per click

Cost per acquisition is used in Pay Per Click (PPC). PPC advertising is a type of search marketing in which advertisers use the Google Ads platform, or other platforms, to target search engines users. The goal is usually to generate as many conversions as possible at the lowest possible cost. And this is represented by a low cost per acquisition.

2.  Display advertising

CPA is also used in Display Advertising. This kind of online marketing uses banner ads in designated areas of a website or social platforms. Display advertising strategically places banner ads on websites or platforms that generate users within your target audience, ultimately converting a higher rate at a lower cost.

3. Affiliate marketing

CPA is also adopted in affiliate marketing. Affiliate marketing is a marketing system where a person or a company makes money from promoting the products or services of another company. The products or services are promoted on sites with a targeted audience gained through search or a following.

4.  Social media marketing

Social media marketing is marketing or carrying out campaigns through social media platforms such as Facebook, Instagram, and Twitter. Social media marketing maximizes your reach to as many users as possible. And with such a strategy where you can get tons of impressions, it is worthwhile to adopt a system to pay for actual sales.

5. Content marketing

CPA is also adopted in content marketing. This is a type of marketing that involves creating, strategizing, and sharing content across many channels. The goal is to generate conversions through the content. Content can be promoted on advertising platforms through cost per acquisition.

How to Calculate CPA?

The formula for calculating cost per acquisition is:

CPA = the total cost of a campaign/number of conversions

Let’s give an example. Imagine you run an online business that sells t-shirts. Then, you run a campaign for your T-shirt business on Instagram in May 2021 and spend $1000. From that campaign, you sell 20 t-shirts. Your CPA is

$1000 spent in May / 20 sales = $50 CPA

So, this campaign costs $50 on average per customer acquired.

What Is a Good/Quality CPA?

There is no generally accepted benchmark for what a good CPA is. Each online business has its margin, prices, and operating expenses. It is crucial to understand these factors to determine what a fair and desirable CPA would be, as you would have to calculate how much you can reasonably afford to pay for acquiring customers. Other factors influence the determination of a good CPA, and these are:

1. Business stage

The stage you’re at in your business will help you define your current and long-term goals. You may be at a stage where your profit is your utmost priority or the stage where you can still sacrifice profits to gain brand exposure. Understanding your business stage and defining your goals will help you calculate the risks you can afford to take and the amount you can afford to spend on brand exposure. For you, a good CPA will not deprive you of profit if that is an utmost priority.

2. Budget

Your marketing budget is also an essential factor here. The size of your budget will determine how much you can spend on ads. A good CPA for you could be one with high-converting terms with a minimal budget to give the best value with limited resources.

3. Advertising medium

The advertising medium you will adopt should be carefully chosen with the kind of result you are hoping for in mind. Different mediums produce different results. A good/quality CPA will produce the best result possible for the medium you have employed.

4. How acquisition is defined

CPA is majorly defined as the cost of acquiring a paying customer. But it may also involve specific secondary campaigns connected to eventual primary conversions, that is, making sales. A good/quality CPA is one that effectively gets you the kind of conversion you need.

CPA vs. CPC vs. CAC

Understanding the difference between these is vital for the success of your ad investment.

1. Cost per acquisition (CPA)

CPA (Cost Per Acquisition) is a marketing metric that measures the average cost of acquiring one customer through an ad or campaign. CPA is a vital measurement of online marketing success. It is one of the most commonly adopted marketing metrics.

2. Cost per click (CPC)

CCPC (Cost Per Click) refers to the price you pay for each click in your ads or marketing campaigns. This metric goes hand in hand with Pay Per Click (PPC) ads on platforms such as Google Ads, websites, etc. Your CPC is calculated by dividing the total cost of your clicks by the total number of clicks.

3. Customer acquisition cost (CAC)

Customer Acquisition Cost (CAC) is the cost of getting a customer to purchase a product or service. It refers to the resources and costs incurred to acquire one paying customer. Customer acquisition costs are often related to the customer lifetime value (LTV) metric used to measure the value generated by a new customer. The formula for customer acquisition cost is as follows:

CAC = Sales and marketing expense/number of new customers

How to Reduce Your CPA?

While focusing on driving traffic and sales through ads, you should also focus on cost optimization. Reducing your CPA can increase your ROI within a relatively short period. Here is a list of best practices that can help reduce your CPA.

1. Optimizing your landing page

Your landing page is the first thing your customers will see after clicking on your ad, and so, it has a significant impact on conversions. You should measure the effectiveness of the kind of landing page you have to see if it can bring the best possible result. Opt for the landing page that brings the most conversions, and it will help reduce CPA long term.

2. Optimizing the check-out process

There is a high rate of checkout shopping cart abandonment. The top reasons people abandon their carts at checkout are hidden charges and technical website issues. To optimize your checkout process, you should be straightforward about the total amount of the purchases, including shipping fees and creating a pleasant experience for your customers on your website. Doing this will help reduce your CPA.

3.  Identify the purchase intent

By identifying the actual purchase intention of your traffic by their various sources, you can create and adjust your marketing needs and budget accordingly. You will be able to properly market or advertise based on the various needs of your traffic to significantly improve your conversion rate at a convenient CPA.

4. Retargeting

Retargeting is a strategy aimed at people who have previously visited your site but have moved on without converting, for example, users who abandoned their shopping carts. Retargeting techniques can improve your conversion rate and reduce your cost per acquisition.

5. Personalization

Your advertisements and your landing page should reflect consistency in how they couch your offer, and they should take a personalized form. You are more likely to retain users’ attention and get more conversions.

6. Cross-selling

You can raise awareness of your offers through well-timed emails that recommend these products to your customers based on their previous purchases or popular purchases. This strategy is known as cross-selling, and it is cost-efficient.

7. Upselling

Upselling like cross-selling also involves recommending products. Upselling recommends products to customers that satisfy the exact needs, being targeted around what they are already searching for, but are better or have a generally higher quality. With incentives, customers are likely to pay a little higher for the added quality. Doing this should increase your average order value and consequently reduce your CPA.

Frequently Asked Questions (FAQs)

Even though CPA looks pretty simple and straightforward, it will raise a few questions. Below are some of the key questions related to CPA. 

1. What is a good cost per acquisition?


There is no one-size-fits-all answer when defining a reasonable cost per acquisition. Different online businesses have different profit margins, prices, and operating budgets. Thus, it is difficult to tell what a good CPA is for a particular business. It’s often desirable to have a lower CPA.


2. Are cost per acquisition (CPA) and cost per conversion (CPC) the same terms? 


They are the same but have different goals. In cost per acquisition, the goal is to acquire a paying customer. However, in cost per conversion, the goal is conversion. A conversion can be a lead, mail sign-up, app download, or direct mail listing.


3. Is cost per action the same as cost per acquisition?


The terms cost per acquisition and cost per action are sometimes used interchangeably. However, cost per action is a term used when the goal is to make visitors perform a specific action such as making a purchase, filling up a form, or registering for an offer or inquiry.


4. What is cost per lead (CPL)?


Cost per lead or pay per lead is an online advertising pricing model where an advertiser pays for a sign-up from a customer interested in the advertiser’s offer.


5. Is low CPA a good thing?


A low CPA helps cut your advertising costs and improve ROI. But it may sometimes come at the cost of quality and volume. Therefore, if you are opting for a low CPA, you need to do some due diligence.


6. What Is CPA bidding?


CPA bidding is a paid advertisement method that allows marketers to have control over what they spend on advertisements. Unlike cost per click, where advertisers pay for clicks on their adverts, CPA bidding enables advertisers to only pay for conversions.


7. What is the formula for calculating CPA?


To calculate the cost per acquisition, you divide the total cost of running an ad campaign by the number of customers acquired from the campaign. That is:

CPA= Overall cost of a campaign / total conversions


8. How Is cost per acquisition (CPA) Different From cost per mille (CPM)?


CPA measures how much you pay to acquire a paying customer for your product. On the other hand, CPM is a term used to denote the cost of 1000 ad impressions on one webpage. Here, the term Mille means 1000 views.

Conclusion

Cost Per acquisition is, no doubt, one of the most important marketing metrics. You should be in control of your CPA, as it gives you a good idea of the return on your investment. Reducing your CPA primarily affects your revenue positively. Keeping your marketing and advertising costs to a minimum is important to help maintain the profitability of your business. You should also try to learn other marketing metrics to understand the effectiveness of your marketing strategies appropriately.

Spread the love

One Reply to “What Is Cost per Acquisition? The Marketer’s Guide to CPA”

  1. CPA is a direct reflection of the profitability of campaigns that leaves a minimal amount of cost risk with the marketers, making it an obvious choice among the models currently available.

Leave a Reply

Your email address will not be published. Required fields are marked *