In the world of paid acquisition, clicks on your ads can seem like the holy grail. However, you need a better way to measure the conversion capabilities of your content than just clicks – enter cost per acquisition.
If you really think about it, clicks only tell you whether people are getting to your content. And as much as I wish my clicks could give me the bigger picture, that’s not possible.
Instead, I’ve found that cost per acquisition (or CPA) is a better metric to determine whether my content is engaging enough to get my audience to stay and ultimately purchase my product or service.
Read on to learn more about what exactly CPA is, how it’s calculated, how the bidding process works, and some principles for creating creative and compelling ad copy.
Table of contents
Cost per Acquisition (CPA)
Cost per Acquisition (CPA) is a pricing model used in online advertising. With CPA, brands pay for each successful acquisition generated by their advertising campaigns, such as sales or form submissions.
Many marketers prefer the cost-per-acquisition pricing model because they can define an acquisition before they start advertising and only pay when the desired acquisition or action occurs.
I like this model because it allows you to stretch your advertising budget a little more. (Check these out free templates to help you manage your budget!)
This pricing model is used in a handful of paid marketing mediums, including:
- PPC
- Advertisement
- Social media
- partner
- Email marketing
- Content marketing
Let’s now take a closer look at the tenders for the assumption of costs.
Cost per acquisition bids
Cost per acquisition auctions are not the same as a typical antiques auction. Advertising platforms like Google want to level the playing field when it comes to leveraging the size of their reach, so that it’s not always the highest bidder who wins the auction, but always the bidder with the highest ad rank.
AdRank is calculated by multiplying your maximum cost per acquisition bid by your ad’s Quality Score. Your Quality Score indicator is influenced by your page’s relevance to the keyword, user experience, and click-through rate.
This means that companies can’t reach the top spot for every keyword they want just because they have the largest advertising budget, which is a relief for smaller marketers like me. Your content needs to be engaging, and that’s why you and I can certainly compete with them.
In other words, Google wants to stop bad advertisers from promoting bad content, so those with low quality scores tend to only get high ad rankings if they pay a high cost per acquisition bid.
If they want to pay a lower cost-per-acquisition bid, they’ll have to settle for ranking near the bottom of the ad rankings.
Target CPA bids
To generate as many conversions as possible within your advertising budget, you should consider using it Google Target CPA Bidding.
Target CPA bidding uses machine learning to analyze your campaign’s historical conversion data, recommend an optimal average target CPA, and automatically optimize all of your eligible bids to achieve the average target CPA you want for all have defined your campaigns.
When you use target CPA bidding, some of your conversions may cost more than others because your Quality Score or the competition in your ad auction may fluctuate. However, Google will do its best to keep your cost per acquisition as close to your average target CPA as possible.
Cost per acquisition formula
You want to keep an eye on your cost per purchase to keep track of it monthly marketing reports.
To calculate your advertising campaign’s CPA, divide your total advertising spend by the number of acquisitions generated.
Let’s take a moment to play with some numbers to get an idea of how a CPA is calculated. Let’s say you have an advertising budget of $5,000. However, you only spend $2,500 and generate 1,200 conversions.
Your math will look something like this:
CPA= 2,500/1,200
This results in a CPA of $2.08. In other words, each conversion costs about two dollars of your advertising budget.
(Alternatively, you can also use the Return on Advertising Spend Calculator to quickly determine these numbers and some other important metrics!)
Why is cost per acquisition important?
If you’re considering pay-per-click advertising, you need to understand CPA. This is an important metric that will help you plan your advertising strategy.
To help you better understand why this is the case, I thought it would be helpful to share insights from marketing and advertising specialists.
Here’s what they said when I asked, “Why does cost per acquisition matter?”
1. Plan your marketing budget.
Ross KernezCEO of SEO Meetup, told me that your CPA can help you better plan your multi-channel marketing strategy, including PPC, social media and content marketing.
Kernez said, “Knowing your CPA allows for better allocation of marketing budgets. It helps marketers identify which channels are more cost-effective in driving results, allowing them to focus resources on high-performing campaigns while limiting underperforming campaigns.”
2. Improve your advertising conversions.
Just as you use CPA to plan your budget, you can also use it to improve your advertising efforts.
Cristina MuchiCEO of Upway Marketing, put it this way: “CPA is the benchmark to measure how efficiently marketing spend is working for the brand.” Regardless of whether the company uses Facebook ads, Google search or email marketing uses, every platform and campaign incurs costs. CPA shows us which strategies really lead to conversions without breaking the bank.”
3. Easily scale your efforts.
Alfred GoldbergChief Brand Strategist at Absolute Marketing Solutions, told me that calculating your CPA helps take the guesswork out of marketing and makes it easier to scale your efforts.
Goldberg said, “You can confidently scale your campaigns when you know your CPA is profitable. If you spend $10 to acquire a customer who spends $50, why not increase your ad budget? CPA allows you to grow without the guesswork.”
What is a good cost per acquisition?
Now that we know why CPA is important for your advertising efforts, let’s discuss the question on everyone’s mind: What is a good cost per acquisition?
I’ll let you in on a secret: A “good” cost per acquisition varies depending on the industry. So while a $5 CPA might be perfect for one industry, it might be entirely too high for another.
I like something Randall YatesCo-Founder of VA Loan Network said. Yates said, “If you can keep your CPA low, you’re positioned to be successful because every dollar you spend brings more value.” It’s like a well-oiled machine – you reach your ideal customers efficiently and that’s how you scale yours Company.”
On the other hand, a high CPA is a big red flag, says Yates.
“This means that your marketing efforts are not hitting the mark and that you are pouring money into a problem without getting a return on investment. I’ve seen companies struggle and fail because they couldn’t get their CPA under control. “So for me, lowering CPA isn’t just important – it’s the difference between success and failure,” says Yates.
If you’re worried about spending too much on advertising, a good rule of thumb is to stick to a 3 to 1 ratio. In other words, for every three dollars spent, you can expect one conversion.
It’s helpful to reach out to other marketers in your industry to share experiences. This will help you understand your CPA and determine whether it is too high or too low for your industry.
How to reduce cost per acquisition (CPA).
Adjusting your cost per acquisition is a starting point for reducing it. However, there are other factors that play a role in determining the effectiveness of your advertising.
Let’s take a moment to discuss how you can reduce your CPA costs and maximize your advertising spend simply by making a few changes to your marketing strategies.
1. Optimize your ad copy.
Since your Quality Score, which measures how positive and relevant your content is to an experience, is the most influential factor in securing a top ad ranking, this is the best way to go Optimize your cost-per-acquisition costs creates convincing ad texts.
When you sit down to write an ad or landing page copy, your goal should be to write something so captivating that it can grab the attention of a distracted millennial, smartphone in hand and a slice of pizza in front of them the television sits in the other.
One way to do this is to sell a feeling rather than a product. This is what psychology tells us Emotions determine our behavior, while logic subsequently justifies our actions. Marketing confirms this theory – people associate this We have the same personality traits in brands as we do in people.
This is also why pitching a product’s features is a lousy attempt at persuasion. Functions only appeal to the logical part of your brain, which science shows doesn’t translate into actions nearly as well as the emotional part of your brain. So don’t just be creative with your text, but also emotional.
Pro tip: Avoid selling the features and focus on the benefits. For example, don’t just say, “This computer has a 12-hour battery life.” Consider a more compelling statement like, “With 12 hours of uninterrupted power, you can create, work, or browse the Internet all day at your desk or on the go.”
2. Focus on customer retention as a strategy.
To be clear: Acquiring new customers is often more expensive than retaining existing ones. So by focusing on customer retention, you can leverage the investments you’ve already made in acquiring your existing customers, reducing the need for additional acquisition spending. This ultimately leads to a lower CPA.
Additionally, repeat customers tend to generate more sales over their lifetime than first-time buyers. By focusing on customer retention, you can increase the customer lifetime value (CLV) of your customer base.
Pro tip: Checking in with your customers, providing targeted support, and focusing on building a solid relationship with them are some of the best ways to increase customer retention.
3. Improve your landing pages.
Just because you caught someone’s attention with your ad doesn’t mean your job is done. You still need to design a compelling landing page that clearly communicates the value of what we offer.
To achieve this, consider piquing your audience’s curiosity with an interesting headline and subheading and removing all external links from your landing page so that visitors can only leave your paid acquisition funnel if they abandon or convert .
You can also test videos, which can explain the value of your offer more compellingly than text.
If you want to learn how HubSpot creates landing pages that achieve a 35% conversion rate, check out this blog post.
Pro tip: Check out HubSpot Marketing software to increase sales and optimize your landing pages.
4. Use your CRM to prioritize leads.
According to a HubSpot study, 44% of marketers say using customer relationship management (CRM) software to optimize their sales cycle is an effective strategy for reducing CPA costs.
The power of a CRM lies in its ability to centralize and manage your leads. By then organizing leads by their stage in the sales cycle, you can focus your efforts on those with the highest conversion potential.
This allows you to avoid wasteful spending on leads that are less likely to convert, resulting in a lower CPA.
Pro tip: Take some time and analyze how your leads interact with your sales funnel and CRM. This can help you identify critical points that can lead to customer loss.
5. Conduct market research regularly.
How can you talk to your audience if you don’t know who they are?
43.5% of marketers surveyed by HubSpot say conducting market research to better understand their audience is an effective strategy for reducing CPA costs. Market research helps you gain insights into your target audience’s needs, preferences, and behaviors.
Ultimately, targeted messaging increases the relevance of your ads and content, resulting in higher engagement, click-through rates, and conversions.
Additionally, market research provides valuable demographic, psychographic, and behavioral data about your target audience. This information will help you advertise on the right platforms and refine your targeting parameters.
Pro tip: Social media platforms like Reddit forums are great places to learn more about your target audience. Spend some time reading Reddit posts to learn more about their wants, needs, and pain points.
Back to you
Marketers will chase vanity until the end of time, and if you’re like me, you might feel pressured to do the same, especially when your colleagues complain about their astronomical growth in views or clicks.
As I learned, ad clicks are great, but they only count if you convert a lead into a sale. So if you’re ever tempted to jump on this series of vanity metrics, remember that the goal in marketing is to convince someone to take the action you want them to take.
So create an incentive for your brand to resonate with your audience – that’s what actually hooks people to your content and encourages them to take action. And make conversions, not clicks, your carrot.
Editor’s Note: This post was originally published in May 2019 and has been updated for completeness.