If you’ve ever set up a Facebook Ads or Google Ads campaign before, or you’re new to the world of digital marketing, you may have heard the term CPA. Marketing lingo is full of widely used abbreviations and acronyms, including CPA, CPC, CPM, PPC, ROI. It’s important to know what they mean and how they work for your business. Let’s break down the term, CPA, or cost per acquisition.
What Is Cost Per Acquisition (CPA)?
CPA or cost per acquisition, also known as cost-per-action, is an online advertising metric that refers to the cost of acquiring a customer. The CPA is calculated by dividing the number of conversions your ad generated by the total outlay spent to achieve a paying customer.
We can use a very simple example to look at how this works in practice. Let’s say you run a cake business and pay to advertise your cakes on Facebook. If you spent $1000 on advertising and generated 20 sales, your CPA would be $50. Meaning that every $50 in ad spending resulted in a sale.
While CPA’s are more commonly used to measure the financial input required to achieve a paying customer, they can also be applied to contextualise spending on secondary conversions such as sign-ups and link clicks.
This metric is used across:
– Pay-per-click advertising
– Display ads
– Affiliate marketing
– Social media
– Content marketing
Why is Knowing Your CPA Important?
Your CPA allows you measure the overall effectiveness of your advertising campaign and the direct impact your financial investment is having on the campaign.
When it comes to PPC advertising, most platforms will let you choose between bidding on advertising with a fixed metric; cost-per-acquisition (CPA), cost-per-click (CPC) or cost per impression (usually measured in thousands — CPM).
This determines the dollars you’ll spend to compete for ad placements across the web. Google lets you pay for advertising by optimising specifically for CPA. This stops over-spending and gears your ads towards conversions instead of impressions. Facebook and Instagram can also give you your CPA.
CPA is not a fixed number, it fluctuates and there are many things you can try to reduce it. Aiming for a low CPA translates to less money spent on acquiring each customer.
The bottom line is that understanding your CPA will help you refine your current advertising campaigns, reduce spend on advertising and maximise profits.
How Can I Optimise My CPA?
When it comes to what price is too low or too high, it really depends on your business goals. The geographic locations your advertising campaign targets and industry averages can largely determine your CPA. For example, some industries have more competitors sharing the space, which can send up your CPA when bidding on keywords. Here are our top tips to beat your industry’s average CPA!
Optimise your landing pages
A landing page is the first page that a viewer lands on once they’ve clicked on your ad, it needs to be relevant and inform the user enough to continue through to checkout. This will improve your Google Quality Score
Use retargeting techniques
Retargeting techniques capture people that have abandoned cart or previously visited your website before. These leads are ‘warm’ having already interacted with your product or service and are much more likely to purchase than colder markets.
Reduce your location targeting
Have a look at where your conversions are coming from and reduce your budget or eliminate locations that aren’t converting well.
Check and add negative keywords
Ensure that you’re not bidding for keywords or topics you don’t want to be listed under. This can save you from spending precious campaign dollars where you don’t need them.
Change the ad format and copy
If you’ve tried to narrow down your targeting and optimise your landing pages, you might want to experiment with the ad itself. It’s always good to revisit your overall campaign goals and marketing objectives before making random changes. If you’re looking at changing formats, video is generally a great option to boost conversions and thus lower your CPA.
Optimise your checkout process
If your checkout process is too time consuming, confusing or uncovers hidden fees, consumers are more likely to click off your website. Optimising your checkout process to make it smooth, secure and deliver on the ad will help lower your CPA.
Change your keyword bidding
Sometimes it’s better to bid on long-tail keywords, or reduce bidding on keywords that simply aren’t performing well. Have a look at the keywords you’re spending budget on and do some research to find niche keywords that have less competition.