Cost per acquisition (CPA), alternatively referred to as cost per conversion, is a growth marketing key performance indicator (KPI) that quantifies the cumulative expenditure incurred by a user undertaking a task that results in a conversion. The conversion may involve various actions, including purchases, clicks, sign-ups, form submissions, or app downloads.
The formula for computing CPA is the total advertising cost divided by the total number of conversions as follows:
CPA = Total Advertising Cost/Total Number of Conversions
For example, let’s assume that you have run an advertising campaign on Facebook, Twitter, and Google to promote your e-commerce business for a week. If the total advertising cost for the campaign was $1000, and there were about 50 conversions, the CPA would be $20 ($1000/50).
CPA is a critical KPI for every business, as it provides a business perspective to measure the success of your campaign. However, many marketers tend to concentrate on traffic and sales acquisition and overlook cost optimization. Focusing on cost optimization by reducing the cost per acquisition can increase your return on investment (ROI) within a relatively short period.
Cost per acquisition is an important metric that is utilized in various paid marketing activities, including Pay-per-click (PPC), Affiliate marketing, Display advertising, Social media advertising, and Content marketing.
Cost per action (CPA) is a performance-based pricing model that enables marketers to pay media sources a fixed rate based on a predetermined action. Unlike cost per install (CPI), which relies on attributed user installs to achieve campaign conversion, CPA can be selected from various in-app events, including registration, app launch, item purchase, and other actions.
The value of CPA is simply the price an advertiser pays a media source for each pre-specified action (e.g., purchase, registration, etc.) driven by that source. To obtain a comprehensive overview of a particular ad network’s performance, you can calculate the effective cost per action (eCPA) by dividing the total cost incurred from that network by the total number of specified actions based on a pre-selected time range.
This metric includes all campaign CPAs you want to measure, giving you an overall view of advertising costs over time on the media source level.
Tracking cost per acquisition (CPA) is a crucial aspect of digital-first businesses, and it can be done using several methods, including:
By leveraging UTM parameters, digital-first businesses can generate link codes for social media or affiliate marketing, which help to track CPA more effectively. Exporting PPC campaign data from AdWords and using promotional codes to build custom links for internal campaigns can also provide valuable insights into CPA. An effective CRM system can streamline the tracking process, making it easier to monitor CPA accurately. Additionally, including a form field on lead forms can help identify the lead source, reducing lead attribution gaps and providing a clearer picture of CPA.