What is CPA?
CPA or “Cost Per Acquisition”- is the marketing metric that measures the aggregate cost to acquire one paying customer on a campaign or channel level. CPA is a vital measurement of marketing success, generally distinguished from Cost of Acquiring Customer (CAC) by its granular application.
Total Campaign Costs
_________________ = CPA
Why CPA is it an important metric
Several marketing metrics are indicators of success, such as conversion rate and visits (or “sessions”). Cost Per Acquisition, on the other hand, is a financial metric used to directly measure the revenue impact of marketing campaigns.
Armed with AOV (average order value) and CLV (Customer Lifetime Value), online businesses can determine an acceptable CPA for e-commerce acquisition. Conversion rates are the main indicator of marketing success, but CPA provides the business perspective by which to gauge campaign success.
Cost Per Acquisition is used in the following paid marketing mediums area:
Defining a Quality CPA
There is no common benchmark in e-commerce for a “good” CPA. Every online business has different margins, prices, and operating expenses. The most important factor in determining a desired CPA is understanding these factors, enabling a business to calculate how much they can reasonably afford to pay for acquiring customers. Other influencers include:
- Business Stage: Are you at a point where profit margins are the first, second and third priority? Or are you in a growth stage where profits can be sacrificed for brand exposure? Clearly defining eCommerce goals and risks are crucial to developing benchmarks that everyone in the organization is content with.
- Budget: A limited marketing budget lends itself to conservative ad spend. With reduced ad spend, focus on low-hanging fruit — high-converting terms and brand queries. As the budget goes up, campaigns can be expanded to include lower-converting terms with a higher CPA.
- Advertising Medium: Where you choose to spend ad dollars is greatly influenced by the factors discussed above in Business Stage. Affiliate, PPC, and Content Marketing have varying expectations and different desired outcomes. For example, the content may convert less in the short-term but can be a key driver of brand awareness.
- How “Acquisition” is defined: While CPA usually refers to the cost of acquiring paid customers, the metric is sometimes applied to secondary campaigns such as newsletter sign-ups or direct mail listings. It is considered the best practice to use CPA as of the overarching metric that connects secondary conversions to the primary conversion: making a sale.
Online businesses can track cost per acquisition through a variety of methods, including:
- Utilize UTM parameters to generate link codes for social or affiliate marketing
- Exporting PPC campaign data from AdWords
- Using promotional codes and building custom links for internal campaigns
- Implement a CRM system
- Include a form field on lead forms that asks customers how they found out about a campaign, which can help plug attribution gaps
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