Cost Per Acquisition measures the marketing efforts of a business by showing how much money is spent on average for acquiring a single customer.
What Is Cost Per Acquisition Cost (CPA)?
CPA is a metric for businesses to understand how much to spend on marketing to acquire a customer. It helps businesses see how well their marketing is working. CPA is important because it provides businesses insight into the financial impact of their marketing campaigns for customer acquisition.
It is especially crucial for D2C brands to know their average order value and customer lifetime value to decide on an acceptable CPA. While conversion rate indicates campaign success, CPA gives a deeper view of the financials of a business. CPA is used in various types of advertising like pay per click, affiliate marketing, and social media.
How To Calculate CPA?
CPA measures the cost incurred by a business to acquire a new customer or gain a desired action through advertising/marketing. Businesses divide the total ad spending by the number of new customers or actions like clicks/impressions. For instance, if a $1,000 Facebook campaign brings in 50 sales, the CPA is $20 per sale. This shows the cost for each successful outcome from advertising efforts, whether it’s product sales or simply an action of signing up.
What CPA Is Perceived As Favourable From A Business Perspective?
Typically, a favourable CPA depends on the specific industry and goals of the campaign. From a business perspective, the idea is to ensure that the money spent on ads brings in more money than it costs. A good CPA helps a business make more profit while reaching a lot of people.
It is common for brands to exceed their set budget for acquiring new customers. However, it’s important to keep this cost under control for profitability. Comparing a business’ CPA with that of other similar businesses can give a sense of how well the business is doing in terms of CPA.
Cost Per Acquisition (CPA) VS Cost Per Lead (CPL)
Cost Per Lead (CPL) shows the total expense incurred by a company to generate a single potential customer lead. CPL costs include advertising, inbound marketing, and other marketing costs.
How To Minimise Cost Per Acquisition?
- To lower the CPA, businesses should optimise ad copies by crafting emotionally compelling content that captures attention and triggers action more effectively than logic-based appeals.
- Businesses should prioritise retaining existing customers to save acquisition costs and boost overall revenue, as retained customers tend to generate more value over their lifetime association with a brand.
- Enhance landing pages with intriguing headlines, no external links and engaging video content to effectively convey the offer value and encourage conversions.
- Leverage customer relationship management (CRM) to segment leads based on their conversion potential, enabling focused efforts on high-potential leads and reducing unnecessary spending.
- Businesses can regularly market research to help tailor messaging to address target audience needs, resulting in more relevant ads, increased engagement and higher conversions.