CPA stands for Cost per Acquisition, sometimes referred to as cost per action.
CPA is a metric in digital advertising that refers to the willingness of a company to pay a fee for a targeted ad that results in an acquisition.
In simple words, Cost per Acquisition is the amount of money it takes for you to acquire a customer (or make a sale).
Cost per acquisition is used by digital marketers to analyze, improve and optimize campaigns. Depending on campaign goals, CPA could be a key performance indicator (KPI) or a metric to estimate marketing efforts and determine paid advertising success.
You can utilize CPA to track other marketing metrics like return on investment (ROI), lifetime value (LTV), conversion rate, and more.
To calculate CPA, start by choosing a certain period you were running ads. Then get the total amount you paid for the ad campaign and divide it by the total number of conversions (purchases made).
Here is the standard formula:
ad cost / number of conversions = CPA
For instance, let’s say you run a campaign all September. During that month you spent a total of $1000 on ads and had 20 sales as a result of your advertisements. Per these calculations, your CPA would be:
Spent: $1000
Sales: 20
CPA: $1000 / 20 = $50
Or in other words, you spend $50 for each paying customer that clicked through your ad and made a purchase.
The CPA data allows businesses to evaluate campaign results and effectiveness, based on generated revenue, making CPA a decision-making factor when analyzing and revising ads content.
For example, even if a marketing campaign attracts potential clients - if those prospects don’t take proper action or make an acquisition, campaign effectiveness drops. In such cases, CPA provides an overview and insight on which campaigns gain more sales and paying customers, and where advertising content could be improved.
What makes CPA “good”? An effective CPA for ads is one that maximizes profit and campaign reach at the same time. However, there are no ultimate success formulas for CPA because every business has different goals when it comes to ad campaigns.
Some brands are willing to pay for a large number of clicks with fewer conversions because they generate a high enough revenue even if the number of paying customers is low. While other brands prefer to get as many sales as possible per individual customer reached.
Before measuring what a good CPA is, it is essential to note what type of acquisition you are looking to make (sale, subscription, registration, form fill, e-book download, etc.) and how does the customer acquisition cost compares to your LTV (customer lifetime value).
Digital experts favor the CPA metric because it allows them to determine the conversion goal for each ad campaign.