What does cost per acquisition (CPA) mean?
As the name suggests, cost per acquisition (CPA) represents how much it costs for a business to acquire a new paying customer through a specific marketing channel or advertising campaign.
If you wish to gain a more in-depth understanding of this topic, check out the FAQ section below:
Question #1: How do I calculate cost per acquisition (CPA)?
You can calculate your cost per acquisition (CPA) using the following formula:
Total Cost of Ad Campaign / Total Sales Generated = Cost Per Acquisition (CPA)
So, if you are selling, say, mugs online and sold 1,000 mugs after spending $2,000 on a specific ad campaign, then, using the formula above, your cost per acquisition (CPA) would be $2:
$2,000 (Total Cost of Ad Campaign) / 1,000 (Total Sales Generated) = $2 Cost Per Acquisition (CPA)
You can use the exact same formula for whatever business you could think of.
Question #2: Why is cost per acquisition (CPA) important?
Cost per acquisition (CPA) is important because it gives you a concrete dollar amount to base important marketing decisions on. It allows you to, at a glance, identify which marketing channels and advertising campaigns work and which ones you should pull the plug on, allowing you to direct all your marketing and advertising budget towards channels and campaigns that would bring the biggest returns.
Let us say you are currently spending $1,000 a month each on a YouTube, Facebook, and LinkedIn ad for your email marketing course and your numbers are as follows:
- YouTube CPA = $30
- Facebook CPA = $70
- LinkedIn CPA = $5
Just one look and you immediately know that your LinkedIn ads are performing way better than the other two, so it is probably a good idea to redirect all your ad budget towards it so you can get significantly more sales for every dollar you spend.
But that is not all these numbers tell you. They also highlight the fact that most of your ideal customers are on LinkedIn, so you can tailor most of your marketing and advertising strategies to it instead of spreading yourself too thin by trying to be present on all available social media.
Question #3: What is the difference between cost per click and cost per acquisition (CPA)?
The main difference between cost per click and cost per acquisition (CPA) is what they measure.
The former, as the name suggests, simply measures the total number of clicks a given ad got against the total cost of that ad using the following formula:
Total Cost of Ad Campaign / Total Number of Clicks = Cost Per Click
So, if you spent, say, $5,000 on an ad and you got 3,500 clicks, then, using the formula above, your cost per click would be $1.43.
Take note that a click, in this case, does not have to translate to an actual sale for it to count—unlike with cost per acquisition (CPA) where you only consider completed sales.
Question #4: What is a good cost per acquisition (CPA) to aim for?
There is no actual benchmark that represents a good cost per acquisition (CPA) for you to aim for. There are just too many variables at play to determine a universally applicable number.
So, instead of focusing too much on having a concrete number to target, keep testing different channels and campaigns to find which ones work best for you—and then keep optimising so you can keep reducing your CPA.
Question #5: When should I use cost per acquisition (CPA)?
Cost per acquisition (CPA) can be used with any advertising campaign that allows you to accurately track how many sales you get for every dollar you spend. An example of this would be a Google ad that is specifically configured to track successful conversions.
As a general rule, CPA works best with online campaigns because it is virtually impossible to accurately measure how many sales offline ads generate.