Cost per Acquisition is also known as Cost per Conversion or sometimes Cost per Sale; each can be used interchangeably. However, some businesses differentiate the terms by assigning them to when customers take specific actions on the website.
The Cost per Acquisition (CPA) metric is the total cost for a business to acquire a new customer, which is specific to the source of the customer. However, it’s a bit more nuanced than that…
This metric is one of the most important KPIs of your business and the Google Ads you’re running, because it tells you if you’re making or losing money on your advertising. But it’s affected by more than just Google Ad Spend.
Why CPA Matters
Cost per Acquisition is one of the essential Key Performance Indicators that allow you to evaluate the efficiency of your digital marketing campaigns.
CPA is important for evaluating other indicators, such as the Return on Investment of your Google Ads Campaigns or other marketing efforts.
A lower CPA is almost always better, as it means your budget is being used more efficiently. Using it for real-time feedback allows quick campaign adjustments to minimize wasted resources.
You may be wondering, how do I actually find my Cost per Acquisition?
How to Calculate Cost Per Acquisition
To calculate your CPA, you have to define where an acquisition is for you. Generally, this is once a customer has spent money on your business’s products or services. But this threshold might be different for your business.
Once you know your threshold for an acquisition, you can calculate the costs within a given time period and the number of acquisitions you’ve had in that time period, and divide:
CPA = Sum of your costs ÷ number of acquisitions
Google Ads has a Cost per Conversion tracker in the Google Ads center, as long as conversion tracking is set up. This metric can help you understand the cost of Google Ads, but it doesn’t account for the full cost of everything that might go into your advertising budget.
So what all goes into your total costs?
What to Include in Your Total Costs
Every part of your spending on marketing is important to defining your CPA, since a forgotten expense can be the difference between losing and making money.
Every cost that went into acquiring that customer should be included:
- Ad Spend: The money you pay directly to platforms to run your ads or PPC Campaigns.
- Marketing Team Salaries: Including the part of your marketing team’s efforts that contributed to your acquisition is important for ensuring all costs are accounted for. This includes anyone who was paid for their time and effort in the ad campaign.
- Contractor/Agency Fees: The costs of an acquisition are also made up of the cost of B2B expenses. If there’s an agency, freelancer, or consultant you’re paying to help acquire a customer, you have to include that cost as well.
- Software and subscriptions: The monthly cost of your software, tools, programs, and other platforms all contribute to the cost of your acquisitions.
- Creative Content Production: Any production costs money to create, so those ad creatives, videos, or written copy are all costs to be factored in.
When you’re doing these calculations, it’s important to factor in the time period you’re evaluating, so if you’re looking at the CPA for a month’s worth of data, only factor in the right percentage of your team’s salary for that time period.
So now that we’ve got an idea of how to find our CPA, let’s evaluate it.
What Is a Good CPA?
CPA is not one size fits all; it requires an individual look at your business’s industry and what’s reasonable for your margins.
An example of this would be a company that has a several-thousand-dollar product can have a much higher CPA and still turn a large profit, compared to a commerce business with an average order of less than $100 who needs to keep a low CPA.
The CPA of an industry can also vary greatly depending on various changing factors during a year. For instance, in many industries, consumers in January are, in general, less likely to buy eCommerce. While a gym might expect an increase in short-term subscriptions, many of which will get canceled after a few months.
A general guideline for a good CPA is a ratio of 3:1, comparing customer lifetime value to customer acquisition cost, meaning a customer should be worth three times the cost to acquire them.
Now that we have a sense of our CPA, let’s talk about how to lower your business’s CPA.
How Do I Lower CPA?
The ways you reduce CPA depend on what your goal and focus are for your Google Ads.
Lowering CPA is almost always doable by focusing on targeted changes and improvements to your campaign.
Here are some areas you could focus on:
Focus on Your Target Audience
Without focusing on the correct audience, there will be a high cost per acquisition and wasted ad spend. Focusing on users without high intent is often one of the easiest ways your business is losing money.
To fix this, we suggest using your existing customers’ traits to influence who is targeted through your PPC campaign.
Excluding customers who have already visited the website or already become customers is also important.
The goal overall is to ensure your ad spend budget is mostly reserved for high-intent users who will actually commit to buying your product.
A/B Test Your Ad Creative
The power of first impressions extends to when potential users see your ads. A week ad is less likely to be clicked on because it’s what the customer judges your brand on.
The idea of A/B testing is to change one thing at a time to see how it impacts performance. So changing the headline of your ads, the ad creative, and the call to action are the first steps to finding the right setup.
Landing Page Optimization
Once potential customers click your ad, the next thing you have to sell them on in your landing page.
Ensuring the landing page matches the ad is important; any discounts or offers promised in the ad that compel users to click should be one of the first things they can see in the landing page.
For more information on how to optimize your landing page and more, consider our services.