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Cost per acquisition is an important component of a business’s online advertising campaigns. This metric can help a company keep track of its content’s conversion rates and determine whether its marketing efforts are successful in drawing in new customers and increasing sales and brand recognition. There are several key factors that go into a quality cost per acquisition as well as a formula you should be familiar with when measuring this advertising metric.

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What Is Cost Per Acquisition?

Cost per acquisition is an essential metric that marketers use when determining how much new consumers are costing an organization. This metric measures the cost of a consumer clicking on a link, making a sale, or submitting a form. When an organization chooses to utilize a CPA model for online advertising, it is responsible for paying for every acquisition acquired from the advertising campaign.

Most advertising campaigns allow markets to set how they will define an acquisition and pay only when the definition is met. For example, a marketer may decide that a sale is how they will define an acquisition and will therefore pay only for each sale made through the campaign.

Why Is Cost Per Acquisition Important?

Cost per acquisition is one of the most important measuring tools a marketer can use to evaluate the cost of new customers. Understanding and regularly calculating CPA allows companies to determine if they should revise their advertising strategies to increase success conversion rates. Whereas a conversion rate is a metric used to determine success, CPA is a financial measurement utilized to decipher the overall revenue increase or decrease of a marketing campaign.

Another reason CPA is important is that it gives marketers the opportunity to control advertising costs that align with their specific advertising objectives. Keeping track of CPA ensures you’re spending your advertising dollars in the most efficient way to meet your goals.

Factors of a Quality Cost Per Acquisition

The following are key factors that affect the quality of cost per acquisition:

  • The quality of your landing page
  • The click-through rate, which refers to how many clicks your ads receive divided by impressions
  • The relevance of your keywords compared to your ad group, or the collection of keywords and ads in a pay-per-click campaign
  • How relevant your ad copy or text is in comparison to your keywords
  • How well your Google Ads or other advertising campaigns have performed historically

How To Track Your Cost Per Acquisition

Tracking is very important when it comes to cost per acquisition because the cost for each action is made on the basis that an action is taken. Common tracking methods used include:

  • Voucher codes – These are codes that customers enter at checkout. This method of tracking is useful with social media and email campaigns and can be easily tracked based on how many codes are used.
  • Google Analytics  This tool tracks your conversation rates based on tagged links that indicate the campaign, medium, and source.

CPA Formula

Here is the formula you can use to calculate your cost per acquisition:

Total cost of advertising campaign / total number of customers acquired in the same time period = CPA

Example: A company spends $100 a month on Google ads and acquires 10 customers each month. The company’s cost per acquisition would be 100/10 = 10, so each customer they acquire through the Google advertising campaign is $10.

How To Optimize Your CPA

The following are several ways you can optimize your CPA and generate more conversions:

  • Know your audience – Understanding your target audience is key to creating content that persuades them to click on your ad and convert once they’re on your landing page. Take time to get to know your audience’s primary problems and how your products and services can solve them, and relay this in a convincing and clear way on your website.
  • Create a convincing and concise landing page – Garnering the attention of a consumer with your ad is only the beginning. Once they reach your landing page, they should be drawn in and compelled to convert. Get your audience interested by piquing their curiosity with an exciting headline, keeping your landing page simple and easy to understand, and making it easy to move through the sales funnel.
  • Use psychology – Rather than writing content about the features of a product or service, create content that speaks to a consumer’s emotions. The more emotionally appealing your page is, the more likely a customer will choose to purchase from you.
  • Fine-tune user experience – Making a good first impression once a visitor reaches your page is critical to converting them. Use A/B testing or another testing method to fine-tune the main elements on your page and boost conversion rates.

How To Reduce Your Cost Per Acquisition

Regularly working to reduce your CPA can help increase your return on investment. Here are a few ways to reduce your cost per acquisition:

  • Improve your checkout process – An estimated 68% of users abandon their online shopping carts, which means you could be missing out on a lot of potential conversions. Improve your checkout process by making it as streamlined and simple as possible and being straightforward about taxes and shipping fees, which can help prevent cart abandonment and create lower CPA.
  • Retarget your potential leads – Remarketing or retargeting allows you to contact people who abandoned their carts or bounced from your site. This can potentially help draw them back in, especially if you offer a discount code.
  • Improve your Google Quality Score – A Quality Score is Google’s way of rating the relevance and quality of your ads and target keywords. Improving your Quality Score can reduce your CPA. To do so, find the most relevant keywords for your company and improve the overall user experience of your website.

The more you work to improve your CPA, the better your conversion rates will be and the more revenue you’ll bring in.

Knowledge Base: Intro to Marketing

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