Cost Per Acquisition
You've probably heard them all by now. "Impressions" "Clickthrough rate" "Cost per Click" "Conversion Rate" "Bounce Rate" "Percent of unique visitors," and more. There is no shortage of metrics which illustrate the perceived success of your online marketing. A majority of these metrics are helpful for determining campaign success in terms of outreach, user behavior, etc. Unfortunately, these aren't financial metrics that really illustrate the success of a campaign.
Why CPA is so Important
Cost per acquisition is a very important marketing metric because it is a financial metric that directly measures the revenue effects of marketing campaigns.
Cost Per Acquisition is commonly used during a number of paid marketing mediums such as the following:
- Affiliate Marketing
- Display Marketing
- Social Media Marketing
- Pay Per Click Marketing
- Content Marketing & more
Cost per acquisition definition
The definition of cost per acquisition is the cost of a marketing campaign divided by the number of acquisitions. CPA can be used for paid campaigns in both e-commerce and service industries. The formula is simple. If you spend $500 on adwords and get 10 customers, your CPA is $500/10 or $50 per acquisition.
Why CPA matters to you
CPA is an important metric because it helps you, as the business owner, measure the success of a campaign. You can factor CPA into your operating costs and price your goods or services accordingly. If you offer a service such as a fishing charter, you might be shocked by the $1,000 Adwords bill at the end of the month. If you got 10 customers out of the campaign however, your CPA is around $100. If you make $300-$600 per trip, you still have a decent margin to work with after your marketing expense.
In e-commerce, your CPA should be much smaller because margins are much smaller. CPA can be used to measure marketing success and is especially important when comparing marketing campaigns to each other, considering your pricing, etc. You may find that your CPA is much higher through Adwords than it is through social media and vice versa. In addition, you can consider CPA and use it to price your service accordingly and even increase or decrease referral fees. If you know that it costs you $150 on average to acquire a new customer online and you were paying a concierge or other referral fee of $50, it might be wise to increase your referral fee to $100. It could incentivize your referral network and your CPA through referrals would still be less than it is online. The same logic can be reversed as well. If your CPA is $50 through your digital marketing and you were paying $150 per referral, maybe you should adjust the number.
How to Calculate CPA and Consider it in Operations
CPA is an invaluable tool for comparing marketing campaigns, evaluating operating costs, and making crucial decisions about your business. The key to successfully measuring CPA is to ALWAYS know where your customers came from and taking impeccable notes through a spread sheet, CRM, or even IPhone notes. Stay organized, know where your customers come from, and make sure you align bookings with the correct campaign. Correctly assessing and considering CPA can be an invaluable tool to any business especially if you measure it over time and stay flexible with your marketing efforts.