In the paid acquisition world, clicks on your ads can seem like the holy grail. But you need a better way to measure your content’s converting capabilities than just clicks — enter, cost per acquisition.
If you really think about it, clicks only tell you if people arrive at your content. And as much as I wish my clicks could spell out the whole picture for me, they can’t.
Instead, I’ve found the cost per acquisition (or CPA) is a better metric to determine whether my content is engaging enough to persuade my audience to stay and, ultimately, buy into my product or service.
Read on to learn more about what exactly CPA is, the formula for calculating it, how its bidding process works, and some principles for crafting creative and convincing ad copy.
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Cost Per Acquisition (CPA)
Cost per acquisition (CPA) is a pricing model used in online advertising. With CPA, brands pay for each successful acquisition generated by their ad campaigns, such as sales or form submissions.
Many marketers prefer the cost-per-acquisition pricing model because they can define an acquisition before they start advertising and only pay when their desired acquisition or action occurs.
I like this model because it allows you to stretch your advertising budget just a bit farther. (Check out these free templates to help you manage your budget!)
This pricing model is used in a handful of paid marketing mediums, including:
- PPC
- Display
- SOCIAL MEDIA
- Affiliate
- Email marketing
- Content marketing
Now let’s take a closer look at cost acquisition biddings.
Cost Per Acquisition Bidding
Cost per acquisition auctions aren’t like your typical auction for antiques. Advertising platforms, like Google, want to level the playing field when it comes to leveraging the size of their reach, so instead of the highest bidder always winning the auction, the bidder with the highest Ad Rank always wins.
AdRank is calculated by multiplying your maximum cost per acquisition bid with the quality score of your ad. Your quality score ad is impacted by your page’s relevance to the keyword, user experience, and click-through-rate.
This means organizations can’t acquire the top ranking for any keyword they want just because they have the biggest ad budgets, which is a relief for smaller marketers like me. Their content has to be engaging, and because of that, you and I can fairly compete with them.
In other words, Google wants to discourage bad advertisers from advertising bad content, so those with low quality scores will usually only acquire a high ad position if they pay a huge cost per acquisition bid.
If they want to pay a lower cost per acquisition bid, they’ll have to settle with stooping at the bottom of the ad rankings.
Target CPA Bidding
To generate as many conversions as possible within the limits of your advertising budget, consider using Google’s target CPA bidding.
Target CPA bidding leverages machine learning to analyze your campaign’s historical conversion data, recommend an optimal average target CPA, and automatically optimize all your eligible bids to meet the average target CPA you set for all your campaigns.
If you use target CPA bidding, some of your conversions may cost more than others because your quality score or the competition in your ad auction might fluctuate, but Google will try its hardest to keep your cost per acquisition as close to your average target CPA as possible.
Cost Per Acquisition Formula
You’ll want to keep up with your cost per acquisition costs to track in your monthly marketing reports.
To calculate your advertising campaign’s CPA, take your total advertising spend and divide it by the number of acquisitions generated.
Let’s take a moment to play with some numbers to get an idea of how to calculate a CPA. Let’s say you have an advertising budget of $5,000. However, you only spend $2,500 and generate 1,200 conversions.
Your math will look something like this:
CPA= 2,500/1,200
This gives you a CPA of $2.08. In other words, each conversion costs around two dollars of your advertising budget.
(Alternatively, you can use the Return on Ad Spend calculator to quickly crunch these numbers and a few other important metrics!)
Why is cost per acquisition important?
If you’re considering pay-per-click advertising, you need to understand CPA. It’s an important metric to help you plan your advertising strategy.
To help you better understand why, I thought it would be useful to share insights from marketing and advertising specialists.
Here’s what they said when I asked, “Why is cost per acquisition important?”
1. Plan your marketing budget.
Ross Kernez, CEO of SEO Meetup, told me that your CPA can help you better plan your multi-channel marketing strategy, including PPC, SOCIAL MEDIA, and content marketing.
Kernez said, “Knowing your CPA enables better allocation of marketing budgets. It helps marketers identify which channels are more cost-effective in delivering results, allowing them to focus resources on high-performing campaigns while cutting back on underperforming ones.”
2. Improve your advertising’s conversions.
Just like using CPA to plan your budget, you can also use it to improve your advertising efforts.
Cristina Muchi, CEO of Upway Marketing, put it like this, “CPA is the yardstick for measuring how efficiently the marketing dollars are working for the brand. Whether the company is using Facebook ads, Google search, or email marketing, every platform and campaign incurs a cost. CPA shows us which strategies are truly delivering conversions without burning through the budget.”
3. Easily scale your efforts.
Alfred Goldberg, Chief Brand Strategist of Absolute Marketing Solutions, told me that calculating your CPA helps eliminate guesswork in marketing and makes it easier to scale your efforts.
Goldberg said, “You can confidently scale your campaigns when you know your CPA is profitable. If you‘re spending $10 to get a customer who spends $50, why wouldn’t you increase your ad budget? CPA lets you grow without the guesswork.”
What is a good cost per acquisition?
Now that we know why CPA is important for your advertising efforts, let’s discuss the question everyone is asking: what is a good cost per acquisition?
I’m going to let you in on a secret: a “good” cost per acquisition varies by industry. So, while a $5 CPA might be perfect for one industry, it might be entirely too high for another.
I like what Randall Yates, Co-Founder of VA Loan Network, said about it. Yates said, “If you can keep your CPA low, you’re in a position to thrive because every dollar spent brings in more value. It’s like a well-oiled machine — you’re reaching your ideal customers efficiently, and that’s how you scale a business.”
On the flip side, a high CPA is a huge red flag, Yates says.
“It means your marketing efforts aren’t hitting the mark, and you’re throwing money at a problem without getting the returns. I’ve seen businesses struggle and fail because they couldn’t get their CPA under control. So, for me, lowering CPA isn’t just important — it’s make or break,” says Yates.
If you’re worried you’re spending too much on advertising, a good rule of thumb is to maintain a 3 to 1 ratio. In other words, for every three dollars you spend, you can expect one conversion.
It’s helpful to reach out to other marketers in your industry to compare notes. This way, you can get a better understanding of your CPA and if it’s too high or too low for your industry.
How to Lower Cost Per Acquisition (CPA) Costs
Adjusting your cost per acquisition is a starting point for lowering it. However, there are more factors at work that determine the effectiveness of your advertising.
Let’s take a moment to go over how you can lower your CPA costs and maximize your ad spending just by making a few tweaks to your marketing strategies.
1. Optimize your ad copy.
Since your quality score, which measures how positive and relevant of an experience your content provides, is the most influential determinant in securing a top ad ranking, the best way to optimize your cost per acquisition costs is crafting compelling ad copy.
When you sit down to write an ad or landing page copy, your goal should be to write something so captivating that it can grab the attention of a distracted millennial slouched in front of the TV, with their smartphone in one hand and a slice of pizza in the other.
One way to do this is by selling a feeling, not a product. Psychology tells us that emotions drive our behavior, while logic justifies our actions after the fact. Marketing confirms this theory — humans associate the same personality traits with brands as they do with people.
This is also the reason why pitching a product’s features is a lousy attempt at persuasion. Features only appeal to the logical part of your brain, which science suggests doesn’t drive action nearly as well as appealing to the emotional part of your brain does. So don’t just get creative with your copy — get emotional too.
Pro tip: Avoid selling the features and focus on the benefits. For example, don’t just say, “This computer has twelve hours of battery life.” Consider making a more compelling statement like, “With 12 hours of uninterrupted power, you can create, work, or explore the web all day, at your desk or on the go.”
2. Focus on customer retention as a strategy.
To state the obvious, acquiring new customers is often more costly than retaining existing customers. So, by focusing on customer retention, you can leverage the investment you’ve already made in acquiring your existing customers, reducing the need for additional acquisition spending. This ultimately leads to a lower CPA.
On top of that, repeat customers tend to generate more revenue over their lifetime compared to one-time purchasers. By focusing on customer retention, you can increase the customer lifetime value (CLV) of your customer base.
Pro tip: Checking in with your customers, providing targeted support, and focusing on building a solid relationship with them are some of the best ways to increase customer retention.
3. Enhance your landing pages.
Just because you’ve grabbed someone’s attention with your ad doesn’t mean your work is done. You still need to design a compelling landing page that clearly conveys the value of our offer.
In order to do this, consider piquing your audience’s curiosity with an intriguing headline and subheading, and scrapping any external links from your landing page so visitors can only leave your paid acquisition funnel if they exit or convert.
You could also test out video, which can explain the value of your offer in a more engaging way than text can.
If you want to learn how HubSpot creates landing pages that convert at 35% rate, check out this blog post.
Pro tip: Check out HubSpot’s Marketing Software to help drive revenue and optimize your landing pages.
4. Leverage your CRM to prioritize leads.
According to HubSpot research, 44% of marketers say using a customer relationship management software (CRM) to streamline their sales cycle is an effective strategy for lowering CPA costs.
The power of a CRM lies in its ability to centralize and manage your leads. Then, by organizing leads based on their stage in the sales cycle, you can prioritize your efforts on those with the highest potential to convert.
As a result, you can avoid wasteful spending on leads that are less likely to result in conversions, leading to a lower CPA.
Pro tip: Spend some time analyzing how your leads interact with your sales funnel and CRM. This can help you identify sticky points that might lead to customer loss.
5. Conduct market research regularly.
How can you speak to your audience if you don’t know who they are?
Of marketers surveyed by HubSpot, 43.5% say conducting market research to better understand their target audience is an effective strategy for lowering CPA costs. Market research helps you gain insights into the needs, preferences, and behaviors of your target audience.
Ultimately, targeted messaging increases the relevance of your ads and content, resulting in higher engagement, click-through rates, and conversions.
Plus, market research provides valuable demographic, psychographic, and behavioral data about your target audience. This information enables you to advertise on the right platforms and refine your targeting parameters.
Pro tip: SOCIAL MEDIA platforms, like Reddit forums, are great places to learn about your target audience. Spend some time reading Reddit posts to learn more about their wants, needs, and pain points.
Back to You
Marketers will chase vanity metrics until the end of time, and, if you’re like me, you might feel pressured to do the same, especially when your peers clamor on about their astronomical growth in views or clicks.
As I’ve learned, ad clicks are great, but it only counts if you convert a lead to a sale. So if you ever feel tempted to jump on that train of vanity metrics, remember, the goal in marketing is to persuade someone to take your desired action.
So incentivize your brand to resonate with your audience — that’s the thing that actually keeps people on your content and prompts them to act. And make conversions, not clicks, your carrot.
Editor’s note: This post was originally published in May 2019 and has been updated for comprehensiveness.
https://blog.hubspot.com/marketing/cost-per-acquisition
