What is the Cost per Acquisition? Introduction to it

December 13, 2022December 14, 2022 Harsh Anchan 28 Viewsacquisition?, companies, corporate, Cost per Acquisition, entrepreneurship, introduction, investments, market, money 4 min read

Cost per acquisition can be defined as the marketing metric unit to measure the collective cost to acquire one paying customer on a channel level. It is a necessary form of measuring business success. This action can be defined with a multitude of options including but not limited to purchases, clicks, leads etc. Why is CPA so important? How do you calculate it? Let’s try to understand by understanding various aspects of it and try to have a lead and have a brief introduction about it to tackle this. Hopefully, by the end of this article we may have a better understanding of what CPA is and how is it generally used.

Table of Contents

Why is CPA so Important?

Cost per Acquisition is very important as it gives us an overlook of how well the ad campaign that has been created is doing for the market. CPA should be calculated alongside various factors such as ROI, ROAS, CLV and AOV. The key factor for calculating and understanding how well your ad campaign might be performing is conversion rates. It can be considered as the primary key to marketing success however, it provides the business perspective through which campaigning success is gauged.

Also Read: What is Crowdfunding?

Cost per Acquisition has been used for a varied number of fields. Following are some of the various fields that CPA is being used for.

PPC

Pay-per-click’s brief idea can be defined as the advertiser paying for each click their ad gets. PPC can pop up from anywhere, on social media, and search engines. Their basic goal would be to track customers with their interests and wants.

Affiliate

An advertising model in which an organization pays third-party websites or publishers that advertises or leads to the company’s goods and services.

Display

Display advertising is an amalgamation of texts, visuals and URLs to promote or advertise a company’s goods and services.

Social Media

As we may be very well aware of how Social Media ads work, based on various sponsorships to influencers or other celebrities to promote and spread the good word about their product. This can either involve a payment or just free goods depending on the various levels of organizations.

There are various other forms of e-commerce that have been using CPA to get a perspective on the various ad campaigns that have been initiated. These do however require indirect expenses to promote their product in some way or form or the other.

How do we know if the CPA generated is good?

There’s no way exact way of understanding or a traditional consistent basis on if your CPA is good or not. The only way CPA can be measured to be great or not is to compare it to the previous CPA of the previous ad campaign for the same organization and understand how well or poorly the current one has performed. The general rule of thumb that can be considered to understand if your CPA is good or not would be, the lower the capital acquired the better the campaign has performed.

How to track your CPA?

Various methods can be utilized by online businesses to track their CPA. Let’s break down some of the most common routes through which CPA is tracked.

UTM arguments such as generating link codes can be used for tracking CPA for social media and affiliate marketing.
Utilizing AdWords to generate PPC campaign data
To know more about the customers and also to understand the various sources customers are getting the ads, a survey can be added at the end of lead forms.
Implementing the usage of various promocodes and utilizing custom links to track the inner campaigns and gain knowledge.
Utilizing CRM systems to track CPA is a great option too.

How to Calculate CPA?

CPA can be calculated very easily. It just requires the amount that has been spent for the ad campaign divided by the amount of customers attracted to those ads and profitting your campaign. Mathematically speaking, it can be expressed as the following expression and calculated by solving the equation.

CPA = Total Capital Spent on the Campaign / Conversions

Final Thoughts on CPA

Cost per acquisition is a great metric unit as to understand the success of an advertising campaign and has been widely used for various purposes. To understand it briefly, it allows the company to understand how many people have been engaged with the ads and have been lured and how much is the company profitting off of it.