Undestanding Cost-Per-Acquisition

Home/Learn/Digital Advertising/Undestanding Cost-Per-Acquisition

Understanding Cost-Per-Acquisition

How much does it cost to connect to an Individual?

understanding-cost-per-acquisitionIn digital marketing, the term cost-per-acquisition (CPA) is used to explain how much it costs you to gain a new customer. Any given channel will have a different cost to acquire a customer, and different strategies within channels will have different CPA. By defining how much is spent on marketing at each stage of the sales funnel, it is possible to calculate this costing. This relates directly to whatever profit margin you have on whatever it is you are selling. Once you have an established sales funnel and advertising benchmarks, as long as the profit margin is higher than the CPA, then you are able to acquire customers at a profitable rate.

Why is it important?

While most of the metrics such as conversion rate, engagement and visits indicate performance, CPA is a metric directly relating to the financial aspect of your business which correlates to your marketing performance.

How to compute your CPA

Total Campaign Cost÷Conversions=CPA

How to diagram and work out your Cost-Per-Acquisition

cpa-diagram

What insights can I gain from this process?

Performing this auditing process will give allow you to determine if your marketing is both accountable and profitable. If you assess all of your marketing channels in this way you may be able to determine that some of the channels are not performing as well as others and therefore need to play a different role in your marketing mix. For example, with the slow decline of print advertising, advertising in a newspaper may be shown to play a minor role in actually converting your audience. Therefore, your spend on newspaper advertising may be altered to reflect more of a brand-awareness role in your marketing mix.