Cost Per Acquisition (CPA): How To Calculate and Track

If you’ve been around the digital advertising world for quite some time now, you may have heard about CPA, CPC, and CPM. These three metrics are important to any well-run campaign.

However, there is one paid advertising metric that matters more when it comes to measuring successful conversions and that is – Cost Per Acquisition or CPA.

In the following section, we will discuss the definition of Cost Per Acquisition and why it is important that the other advertising metric.

What is Cost Per Acquisition

Cost Per Acquisition (CPA) is a digital advertising metric that measures the aggregate cost of a customer taking an action that leads to conversion, or more specifically, a sale.

This method of paid advertising allows an advertiser to only pay an ad if it leads to a successful sales conversion.

Cost Per Acquisition is sometimes referred to as Cost Per Action, Pay Per Action (PPA), or Performance-Based Advertising.

Cost Per Acquisition vs Cost Per Click

Cost Per Click (CPC) measures the cost equivalent for each click on your ads and is specifically designed to drive traffic to a website.

Cost Per Acquisition, on the other hand, allows you to determine the specific action you want to measure, that is, the direct sales converted by the specific campaign.

Cost Per Acquisition vs Cost Per Conversion

Cost Per Acquisition is indeed dependent on the conversion generated by an ad campaign.

However, the type of conversion specifically dealt with in CPA is sales unlike with the generalized conversion commonly referred to when digital marketing is mentioned.

Cost Per Acquisition centered solely on making somebody a customer while Cost Per Conversion could mean a click, a download, or a form submission.

Why is Cost Per Acquisition Important

Cost per Acquisition is important because it’s the ideal metric for determining true return on investment. It does not matter how many clicks you get on your ads or on your website, if it’s not converting into sales, then it’s not totally successful.

CPA is one of the most essential metrics that you should track and measure because it will give you an estimate of how much new customers are costing you. Plus, it will help you determine whether your advertising strategy needs to be modified.

Moreover, it allows you to control your advertising costs as it is designed to only charge for the ad when a chosen action is completed.

With the payment for the ads being based on successful actions, it gives you better control of tracking and maximizing the return on investment across different marketing channels.

How to Calculate Cost Per Acquisition (CPA)

To calculate your campaign’s CPA, take your total advertising cost and divide it by the number of acquisitions generated.

To put it simply, you may take the Cost Per Acquisition Formula as: 

CPA = Total Campaign Cost / Number of Sales Conversions

Let’s say you ran a Google Ad campaign for your eCommerce business and your total budget for that campaign was $1000. After the campaign ended, it brought you 100 sales. Based on the formula, the CPA for the campaign is $10.

Cost Per Acquisition Tracking 

Cost Per Acquisition is easy to track with eCommerce businesses. All you have to do is to look at the source of your sales and use custom links.

Other online businesses, however, may need to use a variety of methods to track CPA. You may need to:

• Utilize UTM parameters to generate link codes
• Export PPC campaign data from AdWords
• Use promotional codes and build custom links for internal campaigns
• Implement a CRM system
• Use a questionnaire or form to ask customers where they are coming from
• Partner with a company that gets the measurement

You can employ a lot of ways in order to track your Campaign’s CPA. Learn what works for you, commit the funds, and make it happen.

How to Reduce Cost Per Acquisition

Here are some of the best practices you can use to reduce your CPA in your advertising campaign.

1. Optimize Your Landing Page  

Your landing page has a huge impact as far as overall conversions go as it is the first page that visitors see after clicking your ad.

When examining the effectiveness of your landing page, consider doing an A/B test that considers the success rate of changing a single characteristic.

2. Use Retargeting Techniques

Retargeting allows you to reach out to potential leads who previously visited your site by showing them relevant ads on other sites they visit.

You can connect with potential customers as they surf other sites by displaying ads that will compel them to go back to your site, and hopefully, convert into a paying customer.

The audience you should never miss is those who abandoned your shopping carts. They are the most important retargeting segment among all the others because these people have a strong inclination to actually buy something from your store or website.

3. Improve Your Quality Score

Quality score is your Google’s rating for having quality and relevant keywords on your PPC ads. It is a metric that measures how positive and relevant an experience your content provides.

Reduce your CPA by improving your quality score. Once you have created more relevant keyword groups, as well as, enhanced the user experience, it will likely improve the effectiveness and clickability of your ad.

In turn, this enhanced clickability and relevance will help improve your Quality Score leading to lower costs per click, lower cost per conversion, and eventually, pricing discounts.

4. Update Your Ad Copy

Take a deeper look at your present ad copy. Make sure the message is aligned with the ad objective. You probably need to make some changes to your ad copy to help you better target your qualified leads.

Start by using a more action-oriented message on your ad to leave a stronger impression. Add urgency to the ad copy to compel visitors to act positively in your favor.

5. Lower Your Bids for Keywords

Run a Google Experiment on your keywords to see how ad rank impacts on your click-through and conversion rates.

Adjust the keywords you’re using based on the results, and drop keyword bids that are simply not generating successful conversions.

6. Make an Effort to Increase Your Email List

Email marketing might be an old school but it’s one of the marketing techniques that deliver consistent results.

Aside from that, it also has the highest return on investment with the lowest cost per acquisition rates compared to other more sophisticated or high-tech marketing channels available today.

Make sure that when you collect information from website visitors, you always try to, at least, get their email addresses.

The more contacts you have on your email list, the less you need to spend your marketing budget toward renting ad platforms like Google, Facebook, social media platforms, and the like.

Bottomline

The ultimate goal of digital advertising is always to generate revenues. Instead of simply chasing website visits and ad clicks, pursue sales conversions.