Cost per acquisition, sometimes called CPA, is the cost of acquiring a customer.
Cost per acquisition is one of the most important business metrics you can monitor. It can be used an a single metric to understand the overall effectiveness of a given marketing channel (how visitors got to your website).
As you business grows and you attract new audiences it is likely the cost per acquisition increases, but as long as it is profitable that needs to be the main focus.
The What, Why and How
Cost per Acquisition
What is it?
The amount of money it costs you to acquire a new customer.
This could be a returning customer, but could was prompted to come back through a marketing channel which had an associated cost attached to it.
There is a number of different ways media is charged (media spend).
Aim to look at this cost of getting a visitor to become a customer.
This can be calculated across your whole website, but it is better the look at this by channel and by device. This will give you the true picture of Cost per acquisition and where you marketing investment is profitable.
For the Online Advertising’s Guide definition go here.
Why should I measure it?
This is possibly the single most important business metric you should monitor. Keeping an eye on Cost per Acquisition will allow you to understand the performance of your marketing channels.
The cost will depend on the type of business and campaign you are running.
For B2C (business to consumer) this is the cost of acquiring the customer without discounts, costs for delivery.
This could be seen as the cost of acquiring the customer rather than the cost of sale or cost of goods.
For products or services you are known for (brand, such as “Weacrank”) this should be a lower cost than for generic categories rather (category terms, suchas “Digitial marketing”).
How to diagnose it
To carry out the diagnosis you will need:
- All your media costs
- Number of transactions
- Across all channels where you can track a conversion
Step 1: Look at the total costs based on a campaign or a time period. Break these costs down by channel. Look at the number of transactions for each channel.
Step 2: Divide the number of transactions by channel to the costs by channel to get the Cost per Acquisition.
Step 3: Compare at the Revenue per user (RPU) or Average order value to work out if the Cost per acquisition is higher. If it is this is an unprofitable campaign and needs to be resolved.
Step 4: Identify and the fix the problem with the campaign or channel. There can be a variety of reasons why Cost per Acquisition is too high. Bounce rate is a clear identifier visitors are not taking action.
Other strong buying signals include Add to cart rate or Cart completion rate. Sometimes a quick win might be to stop driving visitors to a product which is out of stock.
Looking if these terms/metrics changed over time, can point to issues which need resolving. See below for an example Analysis The Crank View.
Want to learn more? See our quick video guide to Cost per Acquisition.
On the go?
Learn what Cost Per Acquisition is, in our 1 minute audio.
Best ways to Diagnose Cost Per Acquisition to stop losing money
Where can I see it?
The screenshot is from Google Analytics and shows where you can find the costs for your campaigns. It is worth noting Google will only show campaigns it controls for example Adwords/Google Ads campaigns.
See our video how to guide to find out where you might be losing money
Best ways to diagnose Cost Per Acquisition to stop losing money
In the graphic we analysed channels on a website comparing their revenue per user (spend per customer) against the cost per acquisition.
By looking comparing each we can quickly see which channels are profit vs loss making.
On the go?
Learn how to diagnose your website profitability in our 2 minute audio.
90 Days to higher conversions using your data
People also ask . . .
There is no set answer for this, as the cost of products, industry you are in and the channel you used to acquire the customer will all have an impact. But understanding channel profitability it key
Firstly you need to understand your Cost Per Acquisition in relation to your business.
To do this look at the Cost Per Acquisition by channel and device. Now look at the corresponding Average Order Value.
If the Average Order Value is above the Cost Per Acquisition, that channel is making you money. I.e. That channel is making more money than it is costing you to get traffic to your website.
However if The Cost Per Acquisition is higher than the Average Order Value you need to take action immediately as that channel is unprofitable.
It is calculated as a currency amount for example £100.
Cost per Acquisition is calculated as the total number of transactions divided by the total amount of marketing cost or media spend.
Or CPA = transactions by channel / marketing cost by channel
To get an accurate measure, you look at total number of transactions where there is a known marketing cost or media spend.
You can calculate the Cost per Acquisition on any channel where you have two things:
- The costs for that channel
- The transactions or leads attributed to that channel
In the example above, we looked at Email Cost per Acquisition by taking the full time employee costs per month and the software costs per month as our costs for the channel.
This is probably the most tricky question to answer easily, as it varies by industry. It also varies massively by the cost of a product within a given industry.
- Gucci customers (£415 trainers) will be willing to pay more
- Primark customers (£3.50 trainers) are looking for value
The easy answer is, as long as the costs are less than the Average Order Value then you could argue that is a profitable campaign and a success.
However it is best to look at individual performance by channel and device. This will allow you to understand the performance and where you are profitable and unprofitable.
As a guideline Workstream updates their benchmarks and recently looked at the costs for Google Advertising.
They found the overall average Cost per acquisition (CPA) in AdWords across all industries is $48.96 for search and $75.51 for display.
However this does vary massively. For example they found in Technology the CPA in Search was $134 vs Display costing $104.
In E-commerce it was the exact opposite with Search costing $45 vs $66 for display.