Have you ever wondered how the cost-per-acquisition formula is most accurate? Understanding cost per acquisition enables marketers and businesses to determine whether or not to send an advertisement in a certain circumstance. AdsNextGen will explain in depth what is the cost per acquisition, how it varies from customer acquisition cost, and how to calculate acquisition cost in this post. Let’s read it now.
Cost-per-acquisition definition
Cost per acquisition is a metric that measures the total cost of acquiring a paying customer for each action such as a sale, form registration, or advertising campaign – Source: Wikipedia.
This metric must account for the cost of marketing campaigns or other expenditures to acquire a new client. It is typically computed in conjunction with the average customer lifetime value (LTV), return on investment, or cost per action (CPA). These three indicators will tell you how successfully you’re managing your marketing budget. This can also assist you with different business decisions.
For a more comprehensive understanding of CPA and its role in digital marketing, you can explore our article on “CPA Google Ads“. This article delves into the intricacies of cost per acquisition, as well as its relationship with other key metrics in the digital marketing landscape.
Cost per acquisition formula & example
How to calculate acquisition cost? Simply divide the overall cost (whether total media spend or particular channel/campaign to acquire consumers) by the number of new customers gained from the same channel/campaign to obtain this metric.
Acquisition cost example
Now let’s take a practical example. Imagine you run a Facebook campaign for your affiliate online store that sells clothes. Your total budget for the campaign was $1000. When the campaign ended, you calculated that it brought you 100 sales. How to calculate acquisition cost? According to the cost per acquisition formula:
- So, your CPA for that campaign is: CPA = $1000 / 100 = $10
- On average, it costs you $10 to acquire for each new customer.
To better understand how to calculate CPA in the field of affiliate marketing, please see our article: What is CPA in affiliate marketing?
Pros and Cons of cost per acquisition
Cost-per-acquisition (CPA) has become an important metric in the world of digital marketing, presenting both opportunities and challenges for businesses looking to maximize their return on investment. As follows:
- Pros
If media is one of your primary conversion channels, calculating CPA will assist you in determining the effectiveness of your campaign.
Cost per conversion is a key performance indicator (KPI) that assesses the effectiveness of various paid marketing channels such as PPC (pay per click), affiliate, display, social media, and marketing content display. It may also track channels with higher indirect expenses (such as payroll, etc.), such as SEO, email, or other platforms.
- Cons
CPA only reflects part of the effectiveness of a marketing campaign. So you need to track other metrics such as Marketing ROI, LTV, Website Conversion Rate, etc.
To learn more about other factors that influence the cost of your marketing campaign, read the article “roi affiliate marketing” for a more in-depth look at this topic.
Factors influencing acquisition cost?
Here are a wide array of factors and how they can affect the CPA of your marketing campaign:
- Budget: As a marketing budget grows over time, so does the CPA; tactics extend into campaigns and channels that may provide poorer conversions in the short term but greater outcomes in the long run.
- Channel: The expenses of various channels, such as pay-per-click (PPC) marketing, affiliate marketing, social media marketing, and content marketing, vary. CPA can also be influenced by competition and demand within a certain channel zone.
Additional, average order value (AOV), or customer lifetime value (LTV) metrics also influence this metric. For example, if a product’s average order value is under $3, the firm would like to pay a far lower CPA than a company with a $50,000 average order value. If a firm’s consumers only make one purchase every few years, the corporation may wish to allocate less income to CPA than a company with customers who make purchases every few weeks on average.
>>>> Explore more: CPA Commission: A Guide for Advertisers and Publishers
What is the best cost per acquisition?
Depending on the cost-per-acquisition definition, a “good” CPA maximizes your profits while reaching as many people as possible. While you should strive to minimize your CPA as much as feasible, the actual figure is highly dependent on your industry and campaign objectives. The higher your CPA will get as you grow (as your conversions improve).
In reality, most advertisers feel that a reasonable cost-per-acquisition ratio is 3:1, this metric should be three times lower than the customer lifetime value (CLV). Your acquisition cost is more than it should be if your ratio is 1:1 or close to it. However, if your CPA is greater than the norm, such as 4:1 or 5:1, you should spend more because you may be losing out on some important possibilities.
CPA will not do well in the reverse circumstance. Keep in mind the golden rule: more paying customers equals less CPA marketing expenditure. To get a lower CPA, optimize your ad spend, increase your CPC, and increase the number of conversions.
Cost per acquisition best practices
Focus on your audience targeting
The easiest way to reduce CPA is to refine your audience segmentation. For example, identify and exclude geographic locations and audiences with low click-through conversion rates.
We regularly pull data from the Google Analytics dashboard by clicking Audience > Geography > Locations. This way we were able to see the conversion rates based on each region to see if the customers we were targeting were effective for the strategies we did. With this method, we have saved more than 10% of the cost of our strategies.
To learn more about types of target audiences and how to reach them effectively, you can read the article “Types of the target audience“.
Target CPA bidding
Target CPA automated bidding sets your bids to get you as many conversions or customer actions as possible – Source: Google Ads.
For example, if you choose a target CPA of US$10, Google Ads will automatically set your bids to try to get you the most conversions at an average cost of US$10. To help improve performance in each ad auction, this strategy adjusts bids using real-time signals (like device, browser, location, time of day, and category) remarketing books, etc.
To learn more about how to use cost-per-acquisition marketing with Google Ads, you can see details in the article “CPA Marketing with Google Ads“.
Build landing pages
You must create appealing landing pages that convey the value of your service. Make sure your calls to action (CTA) are placed toward the top of the page. Also, utilize high-quality photos and content.
Consider piquing your audience’s interest with attention-grabbing headlines, as well as deleting any external connections from your landing page so visitors may only exit the paid conversion funnel.
To delve deeper into the intricacies of creating landing pages for affiliate marketing, check out our comprehensive guide on “landing pages for affiliate marketing” for expert insights and actionable strategies
Improve the mobile experience
To avoid frustrated visitors clicking away, make sure your landing page loads swiftly on mobile devices. Additionally, test it on major devices and browsers to ensure that your material is correctly displayed and simple to read on tiny displays. CTA buttons should be obvious, easy to click, and close to the top of the page to reduce scrolling.
Improve your quality score
You may raise your quality score by improving your ad structure, which will result in increased conversion rates, thereby lowering ad expenditure. To ensure that each ad group targets the most relevant search terms and high-performing keywords, you may employ single-keyword ad groups (SKAGs).
Furthermore, to reduce cost-per-acquisition you should pause keywords with a very low click-through rate and nearly no conversion.
Invest in customer retention
Having a customer come back costs a lot less than acquiring new customers. Some campaigns we have tested on 100 customers implementing a loyalty program, giving out promotional codes, retargeting, and maximizing the quality of customer service. The results surprised us: more than 85% of customers returned to consume our products.
>>>> Check out now: How to find the highest value users with CPA network
Adjust your bids regularly
Remember that your bidding approach may have a major influence on your CPA, therefore it’s critical to continuously analyze and fine-tune your bids. You may get insights into your target audience’s actions and preferences by evaluating your campaign dashboard, and then making required modifications.
Test your ads
A/B testing is an excellent way to guarantee that you are utilizing the optimum text for each audience group. Set up at least two different advertisements in each ad group to see which one works better. Continuous testing allows you to make incremental changes that will result in huge advantages.
Use retargeting techniques
Retargeting allows you to reach out to previous visitors to your website by displaying relevant advertising on other websites they visit. They are a crucial remarketing demographic since they are more likely to purchase anything from your company. You can entice them to return to your website and become paying clients.
Rate optimization (CRO) strategies
Because conversion rate optimization (CRO) is a component of cost-per-acquisition, increasing the number of conversions can help you decrease your CPA. By following the most recent CRO best practices, you should improve the whole user experience that leads up to the conversion event.
For example, by focusing the checkout process on a single page, providing several payment methods, making it mobile-friendly, and enabling live chat to assist visitors as required.
Track it alongside other metrics
Tracking CPA is vital, but it should be done with other metrics such as marketing ROI (ROMI), lifetime value of a client, conversion rate, and so on. This will provide you with a more accurate view of your target demographic, marketing activities, and revenue.
Cost per acquisition vs. acquisition cost per customer
The terms “cost per acquisition (CPA)” and “acquisition cost per customer (CAC)” are sometimes used interchangeably, although there is a distinction:
| Cost per acquisition | Acquisition cost per customer/ Cost acquisition customer | |
| Define | Is the cost of obtaining a client through a certain marketing channel or campaign. | Refers to the overall cost of acquiring a new client, which includes not just marketing spending (as in CPA). |
| Customer’s Action | This activity might be lead generation, trial enrollment, download, or any other conversion event that represents a step toward customer acquisition. | Accounts for all sales, marketing, and pre-purchase expenses such as advertising, content production, events, and salespeople costs. |
| Target | Focus on short-term outcomes inside a given campaign or channel. | The long-term profitability of client acquisition initiatives is prioritized. |
| Strategy | Used to improve individual campaigns and assess the efficacy of various acquisition strategies. | Used to estimate the prospective return on investment (ROI) and the overall efficiency of a client acquisition plan. |
For a more in-depth analysis of CPA and its relationship with other key marketing metrics such as return on advertising spend (ROAS), I recommend reading the comprehensive guide on “CPA vs ROAS“. This article provides valuable insights into the nuances of these metrics and how businesses can leverage them to drive growth and profitability.
Cost per acquisition vs cost per action
Both costs per acquisition (CPA) and cost per action (CPA) are significant digital marketing metrics, but they evaluate distinct elements of consumer behavior. Specifically:
| Cost per Acquisition (CAC) | Cost per Action (CPA) | |
| Focus | It calculates the overall cost of obtaining a consumer who makes a purchase or completes a specified transaction (for example, a paid subscription or a product purchase). Typically through a specific marketing campaign or channel. | Smaller engagements, such as lead generation (e.g., email sign-up, ebook download), app installations, or even social media interactions, should be included. |
| Measures | It measures the cost of converting a prospect into a customer. | This metric is often used to measure the cost-effectiveness of specific actions within a marketing campaign, regardless of whether those actions result in a customer acquisition. |
| Example actions | Purchase, paid subscription | Lead generation, app installation, social media interaction |
| Usefulness | Measuring long-term profitability | Optimizing early engagement and lead generation |
FAQs
How to calculate cost per acquisition from CPC?
To calculate the cost-per-acquisition (CPA) from the cost per click (CPC), you must first determine your campaign’s conversion rate. The conversion rate is the proportion of clicks that result in a desired activity, such as a purchase or registration. Once you’ve determined the conversion rate, apply the following formula to compute the CPA: CPA = CPC / Conversion Rate
Differences between Cost Per Acquisition (CPA) and Cost Per Lead (CPL)
Cost per acquisition (CPA) measures the cost of acquiring a customer, typically through a specific marketing campaign or channel. It focuses on the cost of converting a prospect into a paying customer. On the other hand, Cost Per Lead (CPL) measures the cost of generating a potential customer lead, such as getting someone to sign up for a newsletter, fill out a form, or take some other action that indicates interest in the product or service.
Understanding CPL can help you optimize their lead-generation efforts and improve the overall cost-effectiveness of your campaigns. If you want to delve deeper into the concept of CPL, check out the article “CPL in affiliate marketing“. This article provides valuable insights into the significance of CPL in the affiliate marketing landscape and how it impacts the overall marketing strategy.
Finally, the quest for the most accurate cost-per-acquisition formula remains a focus for marketers looking to optimize their strategy. You can develop more successful campaigns and achieve more conversions for less money if you understand how it works and optimize it.
We hope the CPA guide has been extremely beneficial to you. Please contact us if you have any questions. We are always here to assist you on your marketing journey!
>> Read more:
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