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Aug 20

What’s CPA, or cost-per-acquisition? 

CPC, CPA, CPM–is your head spinning with all these advertising acronyms? In this post, we’ll demystify one of them: CPA, or cost-per-acquisition. (But read our ones on CPC, or cost-per-click, and CPM, a.k.a. cost per mille,next.)

Simply put: Cost-per-acquisition, also sometimes referred to as cost-per-action, is an online advertising metric that measures the cost of one person converting. Different from click metrics, CPA can help measure the effectiveness of your digital advertising campaigns by telling you which visitors stayed, converted, and the specific actions they took when they converted.

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Defining cost-per-acquisition

Cost-per-acquisition versus other metrics

Benefits and drawbacks

Cost-per-acquisition formula

Defining cost-per-acquisition

In a nutshell, cost-per-acquisition, or cost-per-action, is a metric that measures the cost of one person converting.

Cost-per-acquisition is a digital advertising metric that measures the aggregate cost to acquire one paying customer on a campaign or channel level. It represents the target you plan to pay in order to obtain a conversion.

Let’s dig a little deeper.

Cost-per-acquisition is a vital metric of digital advertising success as it supports the investment needed to acquire a customer through paid marketing. With a CPA campaign, you’ll evaluate performance based on visitors completing a specific action that you define at the outset of a campaign. The action can be a number of things—a sale, download, email signup, etc.

Keep in mind, CPA is also a good metric for companies that don’t directly sell a product or service on their website. In this case, the acquisition or conversion could be a lead capture, demo signup, or another indicator of a likely customer.

Not to be confused with the similar-sounding metrics, cost-per-click or cost-per-mille.

Other standard digital advertising metrics are cost-per-click (CPC) and cost-per-mille (CPM).

In the CPC pricing model, rather than paying for an impression or acquisition, the advertiser pays the publisher each time a user clicks on an ad and is sent to the advertiser’s website—more on CPC.

CPM is a little more complicated. It refers to the price of 1,000 ad impressions on one web page. The “M” in CPM stands for “Mille,” derived from the Latin word for 1,000. In the CPM model, there are two costs: the data CPM, which is the cost to utilize audience data to find targeted prospecting or lookalike audiences. The second is the media CPM, which is the cost-per-thousand impressions when your winning bid matches your campaign, ad group, and creative parameters. More on CPM.

CPC, CPA, CPM–what’s the difference? Get your acronyms down with our online advertising glossary

Choosing between cost-per-acquisition, cost-per-click, and cost-per-mille.

The metric you choose will largely depend on your campaign goals (here’s a how-to guide for getting your team aligned on that front) and what do you want people to do when they see your ad.

  • Cost-per-acquisition is most commonly used for conversion-focused campaigns and the best when it comes to evaluating the cost of converting one person and finding channels for generating traffic (more on that later). Apply this metric if you’re driving people to take a specific action, like making a purchase or signing up for an email newsletter.
  • Similarly,cost-per-clickis also used for conversion-focused campaigns. Use this metric if you’re driving people to take a specific action, but keep in mind CPC will only tell you the price you paid for each person clicking on an ad–not the actual cost for getting a person to convert.
  • CPM<, or reach, is used for awareness campaigns. Utilize this metric if your goal is to increase brand awareness and promote your product or service.

Read more: CPM, CPC, CPA, WTF? A guide to setting campaign objectives

Benefits and drawbacks

The benefits of using cost-per-acquisition are many.

Let’s take a look at the key benefits of using this metric. Cost-per-acquisition can:

  • Directly evaluate for a specific action a customer is taking.
  • Generate ideal site engagement with the desired action.>
  • Give you better control of tracking across different marketing channels.
  • Ensure that you’re investing in the most cost-effective channels.
  • Come in handy once you figure out how much a certain customer’s action is worth to your business.
  • Calculate across channels and objectives as you are learning and optimizing campaigns.

But cost-per-acquisition isn’t without its drawbacks.

This wouldn’t be a true educational post if we didn’t give you both sides. Some things you’ll want to consider when using cost-per-acquisition:

  • Cost-per-acquisition could generate lower engagement on a single action, even if you’re serving lots of ads and generating lots of clicks.
  • And high-value products or services will naturally need bigger budgets to achieve the desired outcomes.

Cost-per-acquisition formula

Here’s how to calculate cost-per-acquisition.

It’s pretty straightforward. All you have to do is divide the total costs by the total number of leads. For example:

Cost-per-action (CPA) calculation

$1,000 spent in January / 10 sales = $100 CPA

Keep in mind there isn’t an industry benchmark for a “good” CPA, and that’s because no two cost-per-acquisitions are the same. The cost-per-acquisition will depend on the price of the product or the cost of time or information in engaging with your website’s conversion point.

Think about it–the cost-per-acquisition for a campaign targeting people to sign up for an email newsletter, which asks for little time and zero money on the user’s end, will be much lower than a campaign asking someone to buy a Tesla.

Ready to get going on a digital advertising campaign and need help setting your objectives before deciding on a metric? Chat with us! We’re here to help.

We also recommend checking out our case study on how we leveraged a full-funnel targeting approach to increase sales and lower cost-per-acquisition for our client, Havenly.

Download now: Digital marketing case study: Havenly

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