Understanding CPA, What is Cost Per Acquisition

Understanding Cpa, What Is Cost Per Acquisition

  • Sep 15, 2020
  • 1096 words
  • 4 minutes read
Photo by Markus Spiske on Unsplash 

If you’ve been around the digital advertising world for quite some time now, you may have heard about CPA, CPC, and CPM. These three metrics are essential to any well-run campaign.

However, one paid advertising metric matters more when it comes to measuring successful conversions, and that is - Cost Per Acquisition or CPA.

What is Cost Per Acquisition, and why is it more important than the other advertising metric?

Cost Per Acquisition Definition

Cost Per Acquisition (CPA) is a digital advertising metric that measures the aggregate cost taking an action that leads to conversion, or, more specifically, a sale. This paid advertising method allows an advertiser only to deliver an ad if it leads to a successful sales conversion.

Cost Per Acquisition is sometimes referred to as Cost Per Action, Pay Per Action (PPA), or Performance-Based Advertising.

Cost Per Acquisition vs. Cost Per Click

Cost Per Click (CPC) measures the cost equivalent for each click on your ads and is specifically designed to drive traffic to a website.

Cost Per Acquisition, on the other hand, allows you to determine the specific action you want to measure, that is, the direct sales converted by the particular campaign.

Cost Per Acquisition vs. Cost Per Conversion

Cost Per Acquisition is indeed dependent on the conversion generated by an ad campaign. However, the type of conversion specifically dealt with in CPA is sales, unlike the generalized conversion, commonly referred to when digital marketing is mentioned.

Cost Per Acquisition centered solely on making somebody a customer, while Cost Per Conversion could mean a click, a download, or a form submission.

Why is Cost Per Acquisition Important

Cost per Acquisition is crucial because it’s the ideal metric for determining actual return on investment. It does not matter how many clicks you got on your ads or website; if it’s not converted into sales, it’s not successful.

CPA is one of the most essential metrics that you should track and measure because it will give you an estimate of how much new customers are costing you and help you determine whether your advertising strategy needs to be modified.

Moreover, it allows you to control your advertising costs because it only charges for the ad when a chosen action is completed.

With the payment for the ads being based on successful actions, it gives you better control of tracking and maximizing the return on investment across different marketing channels.

How to Calculate Cost Per Acquisition (CPA)

To calculate your campaign’s CPA, take your total advertising cost and divide it by the number of acquisitions.

To put it simply, you may take the Cost Per Acquisition Formula as: 

CPA = Total Campaign Cost / Number of Sales Conversions

Let’s say you ran a Google Ad campaign for your eCommerce business and your total budget for that campaign was $1000. After the campaign ended, it has brought you 100 sales. Based on the formula, the CPA for the campaign is $10.

Cost Per Acquisition Tracking 

Cost Per Acquisition is easy to track with eCommerce businesses. All you have to do is look at the source of your sales and use custom links.

Other online businesses, however, may need to use a variety of methods to track CPA. You may need to:

You can employ a lot of ways to track your Campaign’s CPA. Learn what works for you, commit the funds, and make it happen.

How to Reduce Cost Per Acquisition

Here are some of the best practices you can use to reduce your CPA in your advertising campaign.

1. Optimize Your Landing Page  

Your lander has a huge impact as far as overall conversions go as it is the first page that visitors see after clicking your ad.

When examining your landing page's effectiveness, consider doing an A/B test that considers the success rate of changing a single characteristic.

2. Use Retargeting Techniques

Retargeting allows you to reach out to potential leads who visited your site before, by showing relevant ads on other sites they visit.

You can connect with potential customers as they surf other sites and compel them to go back to your site to convert into a paying customer.

The audience you should never miss is those who abandoned your shopping cart. They are the most important retargeting segment because these people have a strong inclination to buy something from your store or website.

3. Improve Your Quality Score

Quality score is your Google’s rating for having quality and relevant keywords on your PPC ads. It is a metric that measures how positive and appropriate of an experience your content provides.

Reduce your CPA by improving your quality score. Once you have created more relevant keyword groups and, it will likely improve the effectiveness and click-trough rate of your advertisement.

In turn, this  will help improve your Quality Score leading to lower costs per click, lower cost per conversion, and, eventually, pricing discounts.

4. Update Your Ad Copy

Take a more in-depth look at your present ad copy. Make sure the message is aligned with the ad objective. You might need to make some changes to your ad copy to help you better target your qualified leads.

Start by using a more action-oriented message on your ad to leave a stronger impression. Add urgency to the ad copy to compel visitors to act positively in your favor.

5. Lower Keywords Bids

Run a Google Experiment on your keywords to see how ad rank impacts your click-through and conversion rates. Adjust keywords you are using based on the results, and drop keyword bids only not generating successful conversions.

6. Increase Your Email List

Email marketing might be an old school, but it’s one of the marketing techniques that deliver consistent results.

Besides that, it also has the highest return on investment with the lowest cost per acquisition rates than other more sophisticated or high-tech marketing channels available today.

Try to collect information from website visitors, like their email addresses. The more contacts on your email list, the less you need to spend your marketing budget toward renting ad platforms.

Bottomline

The ultimate goal of digital advertising is always to generate revenues. Instead of merely chasing website visits and ad clicks, pursue sales conversions.

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