In paid acquisition, clicks may seem like the ultimate goal. However, if you consider it clicking only informs you whether people are visiting your website. They don’t tell you if they were there for a long time on your site or didn’t.
For your advertisements, the best method to gauge your content’s conversion capabilities and, consequently, its resonance is the costs per acquisition. Learn more about what it is, its formula for calculation, its bidding system works, and the principles to create appealing and persuasive ads.
Table of Content
- 1 What is CPA in ecommerce ?
- 2 Why CPA is such an important metric
- 3 Formula to calculate CPA
- 4 Tips to improve and track CPA
- 5 CPA bidding on Google Ads and Facebook
- 6 CPA vs. CAC
What is CPA in ecommerce ?
Cost per Acquisition (CPA) in the field of e-commerce refers to a marketing metric that business managers, sales teams, and digital marketers can utilize to calculate the amount it takes to get a new customer via a specific advertisement.
Marketers can utilize this metric to measure their effectiveness and communicate the results of their campaigns with business executives. They can also track the performance of their CPA to determine if it’s time to alter their marketing or creative ad strategy. Businesses that run the following kinds of marketing campaigns typically keep track of their CPA
Why CPA is such an important metric
A variety of indicators of marketing include gauges of the effectiveness of a campaign for determining the success of a campaign, including conversion rates and the number of visits (or “sessions”). On the other hand, cost per acquisition is a financial metric used to measure the impact on revenue from marketing initiatives.
With the help of AOV (average price of the order) and CLV (Customer Lifetime Value), online businesses can identify a reasonable CPA for acquisitions made through e-commerce. Conversion rates are the primary measure of marketing effectiveness; however, CPA offers a business perspective through which to measure the effectiveness of a campaign.
Cost Per acquisition is a method of acquisition in the following paid-for marketing methods:
- Display ads
- Social Media
- Content Marketing
It is also used for eCommerce SEO, email marketing, and other platforms that do not have cost-per-click. However, they still require expenses (labor and indirect expenses for content production, etc.).
Formula to calculate CPA
Use this formula to determine CPA:
CPA = total marketing campaign cost / total number of conversions
If your CPA from a program is lower, your advertisements resonated with your target audience, and you gained many new clients. If the CPA of your campaign is very high, you require a change to your advertising creative, marketing plan, target audience, or the channels you employ to connect with potential customers.
Tips to improve and track CPA
Here are some helpful tips to help you increase and keep track of your CPA:
Set up benchmarks.
Use your organization’s CLV and AOV to determine a successful CPA. Since the criteria for a successful CPA differs from one company to another, It is crucial to develop a benchmark based on your specific company’s information.
Research advertising costs on different platforms.
Marketing costs may differ depending upon the type of platform that you choose to use. Study the cost of advertising on various platforms and keep track of the CPA of every campaign to figure out which platforms are most profitable for your company.
Optimize your landing page.
Ensure the web page you link visitors to after clicking on your advertisement is appealing and efficient. It is possible to run a short test to evaluate the effectiveness of two different landing pages before deciding which one you will use to run your marketing campaign.
Think about purchase intent.
Purchase intention refers to the products and services your audience will likely buy in the near future. Using the data, you collect from customer survey feedback to create marketing campaigns that showcase the items or services that potential customers are most likely to purchase.
Retargeting ads can be used to increase sales.
Marketers use retargeting ads to remind customers who have visited their website but have not made a purchase to complete their purchase. This could increase the number of conversions you get from a particular marketing campaign.
Make use of a customer relations management (CRM) system.
Implementing a CRM system will help you maintain your customer information and evaluate the effectiveness of your marketing campaigns over a longer time. It also helps you automate specific processes, such as creating reports to increase the efficiency of your business.
CPA bidding on Google Ads and Facebook
CPA auctions aren’t like an ordinary auctions for antiques. Certain advertising platforms like Google Ads want to make it easier for all players. So instead of the bidder with the highest price taking the lead in the auction, the one with the most Ad Rank always wins.
Ads on Google can be calculated as a result of multiplying the maximum CPA bid by your quality score for the ad. The quality score can be calculated by evaluating the relevance of your website to the keywords, user experience, and click-through rate. That means businesses won’t get the highest ranking simply due to having the highest advertising budgets. The content they create must be entertaining.
Google intends to reward the most effective users for promoting top-quality content on search results pages. It will reward ads with excellent quality scores, better rankings, and a lower CPA.
To get as many conversions as you can within the limits of your advertising budget, it is recommended to use Google’s targeted CPA bid. All you need to do is provide Google with the CPA you’d like to reach. It then analyzes the history of your conversion data, applies advanced machine learning techniques, suggests an ideal average goal CPA, and automatically optimizes your bids to achieve your goal.
Certain conversions may be more expensive than others because of your quality score or because the bids in the auction for your ads could change. But, Google will try its best to maintain the CPA at a similar level to the desired CPA.
On Facebook, you can also bid on a CPA basis (Facebook calls it “Cost Per Action” rather than “Cost Per Acquisition.” This tool can combine Facebook’s advanced targeting features, only paying once you have completed the desired outcome. Start by navigating into the Business Manager. Next, you must set your campaign’s goal and choose the Ad Set optimization.
CPA vs. CAC
While CPA, as well as CAC, are frequently used interchangeably, they’re, in fact, two distinct marketing metrics:
Cost per acquisition is the variable marketing cost required to get a new client.
Customer acquisition cost (CAC) refers to the variable cost of marketing along with other costs, including:
- Costs of recurring marketing and eCommerce tools that are used
- Ad vendor cost
- Costs for creating ads
- Team salary
- Agency costs (if applicable)
- Team salary
Cost of acquisition for customers is a part of the measure CAC: LTV ratio, which shows the direct correlation between the value of a customer’s lifetime in addition to the cost of the amount it will cost you to get a new customer.
Many eCommerce brands use the same numbers to indicate the marketing expenses for acquiring a new customer.