CPA (cost per acquisition) is the dollar price that an advertiser pays to acquire a customer. It is one of the most important metrics for any digital marketer.
If your cost per acquisition is high, you need to ensure that the value you are generating from acquiring a customer is above the cost per acquisition, otherwise you are losing money.
For example, your cost per acquisition at an eCommerce store might be $5. If you are selling $3 bracelets, then you are losing money! But if you are selling $250 shoes, then you are making good money! For every $5 you spend on marketing, you are selling $250 worth of product!
Different industries have different cost per acquisition goals. Some industries have a high lifetime value (LTV) which means they can justify a higher cost per acquisition. An example of this is the insurance industry. Typically you will stay with an insurer for many years, so paying $200 (or even $500) to acquire a customer may actually be profitable. If that customer pays $1,200 in insurance premiums per year, and stays with the insurance company for 5 years, then the LTV of that customer is $6000.
Use our CPA calculator below to determine your marketing cost per aquisition. Simply enter the amount you spent on marketing, and the number of customers you acquired as a result of that marketing activity. Our CPA calculator will then show you your cost per acquisition.
What is the CPA Formula?
The Cost Per Acquisition (CPA) formula is simply Total Amount Spent ÷ Total Attributed Conversions.
Let’s break that down:
- Total Amount Spent means the amount of money spent on the marketing activity.
- Acquisition means whatever success metric the advertiser deems to be their goal of the marketing activity. Typically an acquisition is a sale or signup.
- Total Attributed Conversions means the number of conversions (acquisitions) that were directly attributable to this marketing activity.
What does CPA actually mean?
CPA is simply “cost per acquisition”. It is simple the dollar cost to acquire one customer.
CPA can be calculated a number of ways, and I encourage every business to calculate a number of different CPA numbers.
The main number is overall cost per acquisition. This accounts for all marketing spend for a set period, and all customers acquired during that period.
Let’s say your total marketing spend was $10,000 last month which was $3000 spent on Facebook, $4000 spent on Google Ads, and a $3,000 sponsored article on a blog. Last month you acquired 500 new customers, so your CPA is $20 ($10,000 divided by $500 = $20).
But you can also calculate CPA per marketing channel. Using your website analytics you will be able to track where those 500 customers came from. Let’s assume 150 came from Facebook, 300 came from Google Ads, and 50 came from the sponsored article. You now have three different CPA calculations you can perform, one for each marketing channel, as seen below:
- Facebook: $3000 spend to acquire 150 new customers
- Google Ads: $4000 spend to acquire 300 new customers
- Sponsored Article: $3000 spend to acquire 50 new customers
So the CPA for each channel is:
- Facebook: $3000 divided by 150 =$20
- Google Ads: $4000 divided by 300 = $13.33
- Sponsored Article: $3000 divided by 50 = $60
What we’ve learnt is that Google Ads acquires customers for the cheapest, at just #13,33 per new customer. The sponsored article sent 50 new customers, but they cost $60 each.
Now you can adjust your marketing budget accordingly. Perhaps next month you won’t buy another sponsored article, and you’ll reinvest that money into more Google Ads.
Why is The Cost Per Acquisition Important?
Knowing your cost per acquisition is important because it determines the viability of your entire business. A business needs to generate more revenue from each customer than it costs to acquire that customer – there is no way to avoid this simple fact.
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