What is Cost per Acquisition? meaning

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Cost per acquisition (CPA) is a marketing metric that measures the cumulative value of acquiring each paying customer via a campaign channel. It is one of the critical marketing measurements that dictate if a particular marketing strategy is successful or not, making it crucial to track and measure. CPA tells you how much each new customer costs the company.

Computing for CPA requires using a formula. You divide the campaign’s total cost by the total number of conversions it led to as in:

CPA = Total campaign cost ÷ Total number of conversions

Remember, the lower your CPA is, the better. That means your campaign cost less than acquiring new customers.

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Why Is CPA an Important Metric?

CPA is a critical metric because it is among a business’s indicators of success. It is also a financial metric that measures the direct revenue impact of an ongoing marketing campaign. As such, CPA gives a business owner essential insights, especially if he/she is planning the budget for the future.

CPA also helps marketing teams update and streamline customer acquisition processes to achieve better results. When done right, it improves the business’s bottom line.

What Marketing Strategies Use CPA?

CPA is applicable in the following marketing strategies:

  • Pay-per-click (PPC) advertising
  • Affiliate marketing
  • Display advertising
  • Social media marketing (SMM)
  • Content marketing

Most business-to-business (B2B) and business-to-consumer (B2C) marketers generate leads through content marketing strategies, paid advertising campaigns, or both since they are equally effective. Investing in different techniques such as SEO content writing services and banner advertising brings results.

What Factors Affect CPA Quality?

No standard benchmarks exist because every industry uses different key performance indicators (KPIs) and incurs different margins, prices, and operating expenses. An excellent way to know if you use quality CPA is to understand the factors that affect the metric listed below.

Current Business Stage

You have to factor the point you are at in your operation. Is your business profitable? Can you sacrifice earnings in exchange for improved brand exposure? It is also crucial to consider your current goals when setting your KPIs. 

Operational Budget

Before you start a marketing campaign, set a budget for advertising spending. If you have a limited budget, your campaigns are understandably conservative, and you should keep your CPA low to maximize returns on investment (ROIs). That means focusing on maximizing brand exposure without spending too much.

Choice of Advertising Channel

You need to understand that your CPA depends on the advertising channels you use. Ideally, your methods should match your goals. For example, you may invest in content if you can forgo short-term gains because effective content marketing can drive brand awareness but takes a while to bear fruit.

How Do You Track CPA?

There are various ways to measure and monitor CPA, including:

  • Using Urchin Tracking Module (UTM) parameters that allow marketers to generate codes attached to Uniform Resource Locators (URLs) in social media or affiliate marketing (Note that UTM parameters used in Google Analytics can track a campaign’s progress across various online platforms.)
  • Gathering PPC data from solutions like AdWords
  • Creating custom links and utilizing promotional codes
  • Building and using a customer relationship management (CRM) system

In marketing, flexibility is crucial. You need to understand that tons of variables (that you can’t all control) can affect your marketing campaigns. As such, it is a must to regularly measure where your business is and if your campaigns are indeed bringing results because that’s the only way you can improve. Now that you know the answer to the question “What is cost per acquisition?” you are one step closer to maximizing marketing campaigns.

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