CPA, or Cost per Acquisition, has been a contentious topic in the advertising world. Some companies and brands have been losing millions of pounds yearly due to a lack of understanding of this metric, most notably with Google Adsense (the most popular CPC platform). This is because most businesses do not know how to calculate CPA. If you want to learn how to calculate this metric, read on, and we will tell you everything you need to know.
What is CPA in advertising?
CPA in advertising is the amount of money a business spends to acquire each of its customers. It’s used to measure the efficiency of advertising campaigns and marketing strategies. A higher CPA means that you are spending more money than necessary to attract a new customer. A lower CPA means you’re getting more value from your advertising.
How do you calculate Cost per Acquisition (CPA)?
To calculate CPA, first, you must identify your costs related to acquiring customers. You should include everything from ad spending or referral fees to travel expenses. Next, divide that number by the number of customers you’ve acquired. For example: if you spent £1 million on advertising and acquired 1,000 new customers, your CPA would be £1,000 per customer (£1 million / 1,000).
Why is measuring CPA important?
It’s the most important KPI for online marketing
The cost per acquisition is one of the most important KPIs you can track because it tells you how much it costs to acquire a new customer or client. This gives you an idea of how much they can afford to spend in future campaigns so that they do not overspend or under-spend and end up with a poor ROI (return on investment).
Helps to analyse the performance of a campaign
You can use this calculation to determine whether or not your campaigns are profitable or not. For example, if you have a campaign with a high CPA, it might need some changes to be more profitable.
Helps to set your marketing budget
Knowing how much money you’ll have to spend on a campaign is essential for setting budgets that make sense for your business. By measuring CPA, you’ll be able to determine how much each new customer costs, which will help you decide how much money should be spent on acquiring them in the first place. This will also help set an appropriate amount for bids on paid search ads (for example).
Helps identify areas for improvement in a campaign
Cost per acquisition is a vital metric that can help you identify areas of weakness in your marketing campaigns. For example, if you notice that your CPA is higher than usual, it could mean that your ad copy isn’t working as well as it should. You can then look at what’s happening with your ad copy and make adjustments to improve it.
Will help you set realistic goals
It helps to set realistic goals by providing insight into possible results given your current budget and strategy. This can be especially helpful when starting out with new advertising methods or trying something new for the first time. You’ll get an idea of how much money is reasonable to expect from your efforts and what kind of return on investment (ROI) you should expect from them.
How do you lower CPA in advertising?
Think Quality, not Quantity
The most effective way to reduce your CPA is by focusing on quality leads. You can create engaging content and promote it through various channels. This will increase your brand awareness and help you generate leads through organic search.
Generate leads through organic search
When you focus on generating quality leads, the next step is to get those people to reach out to you so that they can become customers. The best way to do this is by ranking well in organic search results for relevant keywords. This will drive more traffic to your website and allow potential customers to find what they’re looking for quickly and easily.
Use re-targeting to convert more visitors
Once someone has visited your website, they’re likely to visit again – so why not take advantage of that? Re-targeting can help you turn visitors into customers by showing them relevant ads based on their previous actions (e.g., visiting certain pages on the site) or browsing patterns (e.g., visiting other sites similar to yours).
Create clear calls-to-action in your advertising
Have a clear call to action on any ad that you’re running. For example, if you’re running an ad for a clothing store, it should clearly say ‘Shop now’ or ‘Check out our sale’. If you don’t have a clear call to action, your customers won’t know what they’re supposed to do next!
Utilise Google Analytics
Google Analytics is a tool that will provide you with information about how people interact with your website or app. You can then use this information to optimise your ads to reach the right people at the right time and motivate them to take action (e.g., purchase something from your site or download an app).
Now that you’ve read this article, you should be familiar with the basic concepts of cost per acquisition, including why they’re so important and how to calculate them. If you have any questions about the topic, contact us today.