Cost per acquisition (CPA) is a valuation model of online advertising, where the advertiser pays for each conversion achieved. It is the aggregate cost of attracting a customer through a marketing campaign. In this way, the advertiser only pays if the user carries out a conversion.
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It must be taken into account that the term acquisition can have different considerations depending on the type of company or campaign that we are carrying out but it will always imply a benefit for our brand so it is an excellent metric to later calculate the return on our investment. An acquisition can be to make a purchase of our product, share a publication, fill out a form, make a phone call or register as a user on a web page.
When calculating whether the CPA is profitable for the advertiser, it is necessary to take into account the benefit of attracting an additional customer. To do this, the advertiser must previously define the monetary value assigned to each type of acquisition. It is important to make an adjusted estimate of this value, because if you inflame it or devalue it excessively it can induce us to make analysis errors.
The Cost Per Acquisition (CPA) is calculated using the following formula:
CPA = Campaign Cost / Conversions
In the CPA, therefore, it is especially important that all campaigns are results-oriented, and that advertising costs are properly controlled. Because the CPA guarantees higher returns on our economic investments, it is therefore one of the most used payment methods within digital marketing.
When the CPA is used
The CPA is typically used in the following types of campaigns:
- Google Ads and PPC campaigns
- Facebook Ads and Social Media Campaigns
- Affiliate campaigns
The objective is that the cost per acquisition is always lower than the profit obtained with the campaign, always taking into account the lifetime Value (time that a customer is active and buys on a recurring basis). Each type of campaign has its own characteristics and for certain types it is not recommended to use the Cost per Acquisition since it would not work in a current way. In branding campaigns, for example, where our goal has a more promotional character, it is much more advisable to use metrics such as CPM (cost per thousand impressions).
CPA bids in Google Ads
In Google Ads campaigns there is a type of automated bid estimated based on the target CPA. It is a Smart Bidding strategy in which Google, based on the history of the campaign, estimates the amount of the bids to try to achieve the greatest possible number of conversions at the cost per acquisition (CPA) objective established. This type of cost can be applied to all campaigns: display, remarketing, affiliate marketing, etc …