Cost Per Acquisition (CPA)
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What is cost per acquisition (CPA)?
Cost Per Acquisition (CPA) is the cost to acquire a new customer. CPA is calculated by dividing the total spend by the number of new customers acquired.
How do you calculate cost per acquisition?
You calculate cost per acquisition by dividing your total spend by the number of new customers acquired. You can calculate CPA on the total marketing spend or it can be broken out by individual campaigns. The reason you would break this out by individual campaign is to measure the effectiveness of each specific marketing effort.
For example: if a Google Search Ads campaign spend was $5,000 and 25 new customers were acquired, the cost per acquisition would be $200. Or $5,000 / 25 = $200.
How to reduce cost per acquisition?
You can reduce cost per acquisition by:
- Optimizing your current campaigns
- Running a retargeting campaign
- Pausing unprofitable campaigns
- Testing different elements of a campaign, such as landing page, ad copy or call to action
You can also look at areas of your campaign or marketing efforts which are driving higher cost but are not generating customers. A few areas to look at are:
- Performance on mobile, tablet, desktop
- Ad placement
- Location of ad
Why cost per acquisition is important?
Cost per acquisition (CPA) is important because it helps you determine the effectiveness of a specific campaign or marketing effort. As a business owner, entrepreneur, marketer, you need to understand how your investment is driving new customers and the cost it takes to acquire that new customer.
How much should I spend on cost per acquisition?
The amount you should spend on cost per acquisition (CPA) is different for every organization. If you sell a $1,000 widget you can afford a higher CPA than a company selling a $100 widget.
To determine what you should target for a cost per acquisition, a good rule of thumb is you want your CPA to be 1/3 the cost of your product/service, if it’s a one time sale. If the newly acquired customer will buy multiple products or pay for a monthly service, the CPA should be 1/3 the customer’s Life Time Value (LTV).
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