Calculating, Measuring and Minimizing Cost Per Acquisition

How much does it cost to acquire new customers? And which cost per acquisition formula should you use?

In the PPC world, an “acquisition” happens when a user who clicked on your ad makes a purchase or engages in working with you.

Cost-per-acquisition (CPA) takes cost-per-lead one step further and calculates how much you need to spend to acquire a single customer. 

What is the CPA formula?

To calculate the cost of acquisition, the basic formula is to simply divide the total cost (whether media spend in total or specific channel/campaign to acquire customers) by the number of new customers acquired from the same channel/campaign.

Include all marketing costs associated with acquiring new customers, including sales costs, operational costs, customer service costs, creative costs, and any other indirect costs incurred to acquire new users.

What’s a real-world example of CPA?

Imagine you run a Facebook advertising campaign for your online store that sells handmade crafts. Your total marketing budget for the campaign was $1000. When the campaign ended, you determine that it’s brought you 50 sales. Your cost of customer acquisition is $20, which may or may not be cost per acquisition pricing that’s acceptable to you. 

Now, let’s look at a home improvement business example. Let’s say that out of the 77 leads you attracted, 10 decided to purchase from you. Your investment was $12,000, so your cost per acquisition is $1,200. Again, depending on your business, that number could be a smart investment or an unprofitable one!

What Should My Target CPA Be?

Your average target CPA is dependent on several variables, such as what you sell and how many customers you have, and CPA over time can change! If you sell expensive products, such as high-end kitchenware or furniture, your cost per acquisition may be over a hundred dollars. But, if you sell inexpensive products, such as food or beverages, it may be a fraction of that.

As you continue to grow your business, and as customers get more expensive to acquire, you should expect your CPAs to rise. However, if your CPAs are dropping, and you can afford to spend more money, that’s a great opportunity to go in and grow your brand faster!

Effective Strategies to Reduce CPA

Here are some best practices to reduce acquisition costs in your next PPC marketing campaigns (with links to more detailed instruction!)

Check your marketing metrics at the same time periods every week for the most accurate analysis.

Ensure your landing page is optimized to its fullest to convert your target audience.

Leverage online video; 89% of marketers say that video marketing efforts deliver strong ROI!

Use retargeting techniques. Retargeting is when people who previously visited your site receive related or relevant ads on other sites. It’s a great way to subtly reconnect!

Stop targeting locations that are generating little or no sales (for now!) It’s better to focus your marketing channels on locations that generate more sales. When things shift, then consider back to those no-sale zones again

Improve your quality score. Quality score is defined as “Google’s rating for quality and relevance of both your keywords and PPC ads.” When you create more relevant keyword groups, the improvement in clickability will improve your score, which means lower click-through rate, lower conversion rate, and customer acquisition cost!

Update your ad copy.  Are you piquing your target audience’s curiosity with intriguing headlines, compelling copy, and a strong call to action (CTA)? 

There is no cookie-cutter solution when it comes to reducing acquisition costs but taking the time to find the right combination of advertising spend, content marketing, CPA bidding, and user experience. 

Wondering if you are paying too much for your customers? Find out in two simple steps in our detailed article here. Or reach out to our marketing team directly for help with your CPA campaign!

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