The Cost per Acquisition is the cost of converting a person’s view or click into a sale. By being able to determine the CPA you will obtain valuable information for digital marketing campaigns because you will be moving away from vanity metrics such as; Shares, Likes and Views and focusing on what really counts for your business. The Cost per Acquisition varies for each method and channel you use as well as for each environment, audience and segment. If your ideal audience is looking for similar products or services that you provide on Facebook, then your CPA will be lower than the average since there is a greater audience viewing your posts, adverts and pages. These translate into a greater number of clicks, website views, product views and purchases. However, if you’re using online methods and social media platforms that your ideal audience does not use, you will have a lower amount of clicks, views, purchases and sales from that channel. Therefore, you will have to be more aggressive and spend more on digital marketing to acquire new customers, translating into a higher CPA.
How To Use CPA to Your Advantage
The cost per acquisition metric is very useful when combining it with other revenue and profit metrics such as the Customer Lifetime Value, CVA, (how much revenue the customer will give you over time), Average Order Value, AOV, (the average value of the orders received), and profit earned on each service you provide. These metrics will give you a clear indication on how much you should spend for acquiring new customers and how much value you will is acceptable from digital marketing campaigns.
The Cost Per Acquisition metric is also useful in determining the success of the methods you are using to attract customers. By keeping track of the CPA for each social media channel, online advert and initiative, you will be able to compare the campaigns to each other and make minor adjustments in the artwork or call to actions to reduce the cost of acquiring sales.
Reducing the Cost of Digital Marketing
By calculating the Cost Per Acquisition for each channel or online method you are using to attract new customers, you can identify the methods that bring in the highest number of sales for the lowest cost per sale. Using this information you can either maintain the status quo in sales and reduce your marketing budget, or focus on specific channels, increase the investment and obtain more sales and market share.
How Can You Begin Using CPA?
You will need to build a virtual funnel and track it at each step of the way. The funnel should begin from the easiest and most abundant metric; Impressions or Views and move to different stages until you reach the conversions/ sales. An easy way to start is by using Google’s Campaign URL Builder. Simply follow the instructions, create the UTM parameters and use the links in adverts or posts. You will be able to view the clicks on your Google Analytics account, within the Acquisition section, under the Source/Medium tab.
You can view the visitor journey on your site by using the Google Analytics Behavior Flow Chart within the Behavior tab and select Source/ Medium in the drop down to change the primary dimension.
The Behavior flow will help you fill the gap between the clicks on the ads and the sales figures. You will also be able to calculate the percentages of traffic and drop outs for each product and page. Finally, use the sales metrics for the last metric of the funnel. By using this method, you will be able to assign a Cost per Acquisition value for each funnel and determine which one is more profitable.