CPA shows the cost per number of conversions and indicates how much conversion costs. It is also common to call CPA "cost per lead" (CPL) and is the same.
How To Calculate Cost Per Acquisition?
CPA is calculated by dividing the total (ad) cost by the total number of conversions for the period. CPA is usually expressed in a monetary unit such as currency.
CPA = cost/conversions
Advantages:
Shows how much a conversion costs on average
Used to ensure that on average you do not pay more than the revenue for the conversion Cons:
* Does not take into account the number of conversions
* Does not take into account CTR
* If you have several different types or types of conversions, you need to calculate the conversion rate
for each type of conversion (contact form, groceries, groceries (frequently traded goods), telephone calls etc.)
* Does not take into account actual revenue (ROAS)
What is the Cost per Acquisition?
CPA is the cost relative to the number of conversions. CPA shows how much the average cost is in relation to each conversion, ie cost per conversion, and is usually expressed in monetary units. CPA is often referred to as cost per conversion or cost per lead (CPL). However, we do not use the abbreviation CPC (cost per conversion) because the acronym for this key figure is already occupied. Cost per conversion is easily confused with cost per click which has the acronym CPC. If you are not used to the terms of the PPC industry you are easily confused here.
The key figure CPA is used for several different types of accounts that measure some form of the endpoint on the site:
* Lead Generation
* E-commerce websites where the number of check-outs varies greatly.
* E-commerce websites where the number of check-outs is almost constant.
* Websites where visitors sign up via digital forms.
When to use a CPA?
Below I list some examples of business or organizational models that should consider using CPA as key figures:
* Lead dealers who do not want to pay more for a lead than they can sell it for
* Have long sales cycles and need to use estimates for customers who are early in the buying cycle to estimate how they are related to final conversions
* When there is only one product to buy and the check-out is the same for everyone
* If the site has a fixed subscription price that is recurring every month
Some e-merchants have high variations for the check-out or transaction values. In that case, ROAS is not particularly suitable as key figures, as the results of the tests would not be as safe to keep in the future and in particular to base statistical calculations on. To avoid this problem, you can instead use CPA to at least keep the cost per conversion at a reasonable (profitable) level.
To give you an example, I work with a customer who has an average order value of about SEK 3300 but about 5% of the transactions have a larger order value than SEK 23000. The keywords with the associated ads that give rise to the high order value are completely randomized (so far). This means that if I use ROAS as the key figure in my ad tests, they would, randomly occurring, high order values make me choose winning ads that will not lead to a higher ROAS next month. In cases like this, CPA is a better key figure, for ad tests and adjusting bids, in the sense that the outcomes are not randomized and they stand in the future because the variance is so much lower in CPA than in ROAS.
Benefits of using CPA as key ratios
The great advantage of using CPA as a key figure is to gain control over costs and how much a conversion costs. For example, if you sell a product for SEK 500, you may not want to pay more than SEK 300 to sell the product and have the margins on your side.
If you have long sales cycles, you often need to calculate your CPA in the various phases of the sales cycle in order to be able to calculate what you can tolerate for CPA in the short term. To calculate your CPA goal, you need to deduct the costs from your campaigns or your budget. Often, there are several factors that play into where you can influence your CPA. E.g. can you optimize; landing pages, the check-out, the booking engine, e-mailing, the sales department's ability to utilize leads, etc. to lower your CPA? In other cases, it is much simpler than that. You may sell a single product for SEK 500. Then you might be satisfied that your CPA is SEK 400 if all costs are included, and make a profit of SEK 100 (25%).
In some cases, your CPA goal is pretty cumbersome to calculate. But if you want to keep track of your costs, CPA is an excellent key figure to use for yourself or with other key figures.