CPA is one of the best ways of measuring marketing effectiveness and efficiency. Most of this metric often lands in spend on paid media, like paid search and social media ads. Lowering your CPA allows you to not only control costs but reallocate your budget to the most successful campaigns so you can drive more revenue.
What is CPA?
Cost per acquisition (CPA) is a marketing metric that measures the total cost of a customer completing a specific action. In other words, how much you have to spend on marketing to get a paying customer. CPA indicates how much it costs to get a single customer down your sales funnel, from the first touch point to ultimate conversion.
CPA calculations must include the cost of marketing campaigns or other spending to get a new customer. This metric is usually calculated alongside the average customer lifetime value (LTV), return on investment, or cost per action. These three combined will let you know how well you're doing with your marketing budget. This can also help you with various business decision-making.
How Do You Measure CPA?
The CPA is calculated by dividing your total costs (marketing costs) spent by the number of new customers in the same time period. For example, if for one month all your marketing efforts cost about $500 and your number of potential customers is 100, your customer acquisition cost would be $5.
Ultimately, to find your CPA, you divide the cost of a campaign divided by the number of conversions, or people who have taken your desired action.
Why is CPA an Important Metric?
Many marketing metrics are indicators of success, such as conversion rate and visits. Cost per acquisition, on the other hand, is a financial metric used to directly measure the revenue impact of marketing campaigns.
Conversion rates are a primary indicator of marketing success, but CPA provides the business perspective by which to gauge campaign success.
Cost per acquisition is used in paid PPC, affiliate, display, social media, and content marketing mediums: It can also be used for SEO, email, and other platforms without direct advertising costs but that still require overhead (labor, indirect expenses such as content production, etc.).
Online businesses can track cost per acquisition through a variety of methods, including:
- Utilizing UTM parameters to generate link codes for social or affiliate marketing
- Exporting PPC campaign data from AdWords
- Using promotional codes and building custom links for internal campaigns
- Implementing a CRM system
CPA Best Practices
To improve your cost per acquisition, here are some tips you should keep in mind.
Diversify your acquisition strategy: Taking the time to analyze various data to make better decisions is absolutely worth it. Social media, content marketing, affiliate marketing, SEO, landing page, a/b testing - trace transactional customers back to their attribution source to have a good idea of which channels work well.
Track alongside other metrics: Tracking CPA is great, but it's also important to track it alongside other metrics like marketing ROI (ROMI), Lifetime value of a customer, conversion rate, etc. This will help you get a more accurate picture of your target audience, marketing efforts, and the revenue they're generating.
Invest in customer retention: Having a customer come back costs much less than acquiring new customers. Make sure your sales team is successful at onboarding new clients, and those customer relationships are just as good throughout the sale process. This could be done by implementing a loyalty program, giving out promotional codes, retargeting, and maximizing the quality of customer service.
Defining a Quality CPA
There is no universal benchmark in ecommerce for a "good" CPA. Every online business has different margins, prices, and operating expenses. The most important element in determining a desired CPA is understanding these factors and enabling a business to calculate how much they can reasonably afford to pay for acquiring customers.