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.
Key takeaways- Cost per Acquisition
Top 3 tips for Cost per Acquisition
See our checklist
1. Your overall goal should be to have a lower cost per acquisition than average order value. To work out your maximum/permissible cost per acquisition work out the profit of your products overall. You could take this further and include operational website costs too to get a net profit for products. Take this percentage away from the average order value to arrive at your permissible cost per acquisition. Anything above this is losing you money.
2. Aim to breakdown cost per acquisition for every campaign, by channel and device to understand which pesky combination is letting you down.
3. Look at quantifying your non paid for media channels such as SEO/Organic search, email and organic social. The costs can be a variety of things which you will need to decide what you include. But the bare minimum should include any technology monthly fees. Additionally design and agency (if there are any) costs can also be included. The final one which can be used is dedicated staff costs.
Cost per Acquisition
The What, Why and How
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.
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.
1
List the name of the Google owned campaigns. These are most likely to be either search, shopping or display from google.
2
This is the total cost from Google owned campaigns. This shows the overall cost but this is broken down underneath for specific campaigns.
3
The total number of purchases or transactions per campaign. Use this as a basis to calculate by dividing this by the cost. This will give you cost per acquisition.
4
Look at the bounce rate and pages per session to understand where the issue lies. A high bounce rate means people are not going beyond the page they land on. Low number of pages per session means people are not getting to the checkout.
On the go?
Learn what Cost Per Acquisition is, in our 1 minute audio.
Don't forget to check out our book - Your Number's Up!
Getting a grip on Data and Measurement to accelerate your Direct to Consumer ecommerce sales
With over 280 pages our book is full of actionable material and Avinash Kaushik has kindly written our foreword.
We have created a series of tools to help you understand, measure and grow your ecommerce business.
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Common campaign measurement mistakes and challenges and how to overcome them.
Want to know how good
your cost of acquisition is
compared to others?
To get your results:
- Choose your industry
- Type in your conversion rate
- And hit “Benchmark me”
Cost per acquisition Ecommerce example below
Sources
We created a Cost Per Acquisition benchmarking tool so you can see how you fair against others.
We split this down by industry so you can see the Cost per Acquisition average in our tool.
We sourced industry benchmark data from the following places to build the benchmark:
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.
The goal is to ensure your cost per acquisition is not higher than the revenue per user (RPU).
1
Use the all traffic line to understand the overall numbers and averages as a comparison point. For example CPA in this line is the average across all channels.
2
This is the list of channels or sources of traffic (where visitors are coming from). This example is for desktop channels, to understand performance by device.
3
Here we have listed out the conversions by channel.
4
Costs come next where it is available. Each of the paid channels (search, display, shopping) have been broken out separately. Social and Email had costs too. Social retained agency costs. Email had the internal team costs and software costs.
5
Here is the CPA (Cost per Acquisition) by channel.
6
Highlights which of these channels is profitable vs unprofitable. In this example the CPA for Shopping £400 is far higher than the revenue per user (RPU) at £62.
7
Both the social and email channels are very effective and could have more investment. The social channel revenue was down, but looking across this was due to drop in traffic. Invest in paid social to further boost channel performance.
Can I forecast my Cost Per Acquisition from my Cost per click?
In the graphic we look at the known Cost Per Click (CPC). This is the cost you pay each time someone clicks on one of your digital adverts.
Knowing the CPC means we have a good idea how much it is costing us to get a visitor to come to our website.
We also look at the impact conversion rate has on reducing the Cost per acquisition.
1
Firstly take your Cost per click (CPC). This can be for one campaign, channel (paid social on Facebook) or overall for all your monthly spend.
2
Look at your visitors but filters for the cost per click you used in step 1. These have to be same otherwise you will not be using compariable data.
3
To get total spend multiply step 1 with step 2. So take total visitors X CPC.
4
To understand your “engaged” visitors look for a key activity they do on their purchase journey. In this example we have looked at the number of people who have viewed a product on the Product detail page (PDP). Take the total spend from step 3 and divide this by this number (5000) to get your cost per browser of £3.
5
Take your conversion rate for this campaign, channel or overall as defined in step 1. This example uses a conversion rate of 2%.
6
Now you know your conversion rate you will be able to determine the number of purchasing visitors. In this example we have 200.
7
To get your Cost per Acquisition take the total spend in step 3 and divide this by the number of purchasers in step 6. So £15,000/200. This will give you your Cost per acquisition. This example is £75.
8
As an illustration on the importance of conversion rate, if we were able to improve our conversion rate for this campaign/channel to 5% from 2%, the overall Cost per Acquisition would drop to £30. This is hugely important depending on the value of the product you are selling and the margin on these products.
On the go?
Learn how to diagnose your website profitability in our 2 minute audio.
People also ask . . .
Is my Cost per Acquisition too high?
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.
How is a Cost per Acquisition (CPA) calculated?
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.
Can I measure Cost per Acquisition only on paid for media channels?
No.
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.
How much is too much?
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.
For example:
- Gucci customers (£415 trainers) will be willing to pay more
- ASOS outlet customers (£7 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.
How does my Cost Per Acquisition compare to others?
See our Comparison tool to get your own personalised results compared to others.
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.
How is Cost per Lead (CPL) different from Cost per acquisition (CPA)?
Cost per lead is the measurement of the cost of collecting information about a visitor who could be interesting in purchasing from you.
Typically this is a metric used by Business to Business organisations (B2B) whereby a business is selling to another business.
The cost of the lead is normally based on the media cost divided by the total number of leads. A lead is normally described when a visitor gives their information in exchange for content or engagement with that organisation.
From here the total cost can then be looked at, by seeing the lead to conversion rate to understand the true cost.
Recommended Reading
Below is some recommended content to help you with your analysis in marketing. This content is mixture of content, tools or our book to help you get more out of your digital marketing and data in your business.
Read our book Your Number’s up! – Getting a grip on Data and Measurement to accelerate your Direct to Consumer ecommerce sales
Learn how you can measure and grow your ecommerce business. Theory and practice all in one book.
Define: Conversion rate – Learn why conversion rate is important for your Ecommerce success. Understand how your can calculate it and how you can use analytics in marketing to help diagnose your conversion rate, also find out what impacts a drop in conversion rate.
Discover: Resource for senior marketers – See our latest research or white papers to help you get ahead. Alternatively, read our digital marketing glossary for senior leaders to understand the jargon and acronyms of digital.
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