Understanding Cost Per Acquisition

Traditional marketing and advertising avenues such as TV, billboards, newspaper, and magazine ads are effective means of creating brand recognition. These mediums are also expensive, requiring a substantial investment to ensure their effectiveness and to produce results.

The growing popularity of digital marketing platforms, such as Google, Amazon, Facebook, Instagram, TikTok, LinkedIn, and more, has created a new advertising medium that is more efficient and cost-effective than traditional advertising. Online advertising platforms provide a way to attract qualified consumers, generating repeat sales and brand loyalty at a far lower cost than offline advertising.

Also known as cost per action and cost per conversion, cost per acquisition (CPA) is a metric that measures the cumulative expense of acquiring one paying customer on a specific marketing campaign or channel. Under this pricing model, the advertiser pays for a consumer to take an action that leads to a conversion. The conversion may be a sale, click, a submitted form, or an app download.

To calculate CPA divide the total cost of the marketing campaign by the total number of new customers acquired through the campaign. When determining the total cost of an advertisement or campaign consider not only the financial investment but also the time, energy, and any other expenses involved with developing the ad.

CPA has become a popular option when advertising on Facebook, Google, and other online advertising platforms. The advertising metric is common because it gives advertisers the ability to pay only for direct results and enables advertisers to compare the outcomes of different strategies or campaigns easily.

Measuring CPA gives an advertiser an accurate way to determine if a digital marketing strategy is producing the desired results or is in need of revision. The CPA metric provides insight into your advertising campaigns and which strategies are most effective. A lower CPA means a more effective strategy.

Measuring CPA saves you time and money by allowing you to pay only for conversions. CPA enables advertisers to evaluate and improve current strategies and to create effective marketing campaigns that produce results.

The growth of social media over the past several years has created many new advertising options. Facebook and Google, along with other platforms, have proven themselves to be powerful advertising mediums. These platforms place advertisements alongside original posts that have an association with the advertised product or service, providing added credibility in the eyes of consumers.

These platforms offer ads that enable advertisers to keep costs to a minimum by only charging them for the number of users that click on their ad. Social media advertising allows advertisers to take advantage of the users’ interests by directing them to a page that promotes a specific product directly related to the content the user is looking at with a single click. This type of ad allows advertisers to directly capitalize on the user’s known interest.

Effective social media advertising is enhanced by directing the user to a page with more information on the specific product rather than to a generic company homepage. For instance, if the ad is promoting a particular style of clothing, the advertisement can take them directly to that product rather than to a homepage where they may have to search for that product before finding the information they desire.

Cost per acquisition is an advertising pricing model which enables advertisers to pay for results. This marketing strategy allows marketers to target consumers that have shown an interest in a specific product or service and drive them to the businesses website. Digital marketing professionals can develop persuasive, cost-effective marketing strategies using the CPA metric and provide advertisers with insight into their marketing campaigns and strategies.