To calculate the cost per acquisition take the total cost and divide it by the number of acquisitions.
Of course, you don't always need to spend such a large amount if you're looking to grow your business, however, larger advertising campaigns tend to produce bigger results. Whatever the case, before you start putting your money into advertising, you should first learn the methods by which you will have to pay for those ads such as with cost per acquisition (CPA).
Cost per acquisition is one of the most popular advertising pricing models around. This is because CPA ensures that you will only have to pay for an ad if an online user performs a certain action on your website. This action can differ depending on what you set it as, so that way, you can make sure that your ads are as efficient as possible and that you're not wasting money that won't do anything to help your business.
Keep reading and learn more about how the CPA pricing model works, how you can go about using CPA, and how it can help your business.
What Is Cost Per Acquisition (CPA) Exactly?
Suppose you are running an ad on a website with the intent of bringing people to your website to buy a product or service. When you run an ad, that ad will gather a certain number of impressions. An impression has quite a meager meaning when it comes to the success of your business since it only refers to the number of times your ad appears on a given website.
An impression does not count how many times people click or otherwise interact with that ad. It also does not tell you what these people might do once they arrive at your website. However, impressions are important when it comes to getting more people to see your ads in the first place.
Suppose that your ad has 1,000 impressions. This does not mean that 1,000 people have seen that ad but rather the ad has appeared on a website 1,000 times. Most likely, a much smaller number of people will see the ad.
An even smaller number of people will end up clicking on the ad after seeing it. Finally, an even smaller number of people will end up performing an action on your website once they click on it. This action can be anything from signing up for your website's newsletter, inputting contact information, or purchasing an item or service.
What Does CPA Measure?
Of course, the ideal scenario is for people to go all the way to your website and purchase or sign up for something. This will allow your business to grow both in size and financially. But as mentioned before, ad impressions alone can't accomplish this, and that's where the cost per acquisition comes in.
Cost per acquisition is all about measuring the number of people who perform a meaningful action on your website. When a person does this, only then will you pay for the ad that the person clicked on in the first place. You can choose what actions are meaningful such as a person purchasing your product or subscribing to your email list.
The goal of this mode of advertising is to "acquire" customers. It can be hard to do this at first, especially if your business is new and just starting, but CPA advertising can help you refine your advertising methods as well as your website. The formula for CPA is quite simple.
It involves dividing your variable marketing cost by the number of customers you acquire in a given period. The result will show you how much money you're spending per advertisement per acquisition.
Why Does CPA Matter So Much for Your Business?
CPA advertising is important for any growing business for a variety of reasons. Consider how CPA compares to other types of advertising. For example, pay-per-click (PPC) advertising only keeps track of how many people click on an ad.
Other types of advertisements only keep track of other specific variables such as how many people see your ad, how many people interact with your ad, and so on. However, none of these other forms of advertising tell you whether or not online users perform any meaningful actions once they make it to your site.
For example, with PPC advertising, you know for sure that a user clicked on your ad and was brought to your site. This is great news because now that user has been exposed to what your site has to offer. But what did the user do once they arrived at your site?
Did they do anything meaningful such as subscribe to your site's newsletter or perhaps purchase one of your products? Or did the user click off of your site as soon as they clicked on it? Of course, one of these outcomes is very good for your business while the other doesn't do much for your business's success at all.
The Analytics Behind Cost per Acquisition Advertising
Not knowing what a user does upon arriving at your site can be stressful. More than that, you won't be able to tell if your website is giving your potential customers a good impression. Because you won't know if users clicked away from your site as soon as they clicked on it, you won't know what the problem was.
Was your website's design too tacky or was the layout too confusing? Was it too difficult for the user to find their way to the checkout page? By using CPA advertising, you can tell for sure that your website is in good working order because users are actively making purchases, inputting information, or signing up for something that your website has to offer.
This, of course, is the holy grail of business success. By knowing this information and by going over the analytics, you have a chance to optimize your website and your sales like never before. But what other kinds of positive results can you expect to see from CPA advertising?
What Is a Good Result From CPA Advertising?
One of the biggest benefits of understanding and utilizing your CPA advertising stats is that these stats allow you to plan with your business. For example, suppose that your CPA stats are very high. This means that people who click on your ads and go to your website are interacting with your website in meaningful ways.
This is good news if you're trying to sell a product or service. The higher your CPA is, the more money you will make as a result. The only downside is that your CPA will also increase in price.
However, the goal is to always make more money than what you're spending on advertising. Most of the time, if you have your advertising plans and budget all thought out, this shouldn't be too much of a problem. For that reason, even though having a high CPA also means having a more expensive CPA, it is still worth having a high CPA.
It is simply the cost of the success of your business. But what if you start to see a cost per acquisition reduction instead? The first thing you should know is that a low CPA is not the end of the world and certainly not the end of your business.
A low CPA could mean a variety of things and it is not necessarily a bad result. It means that users who click on your website through your ad are not performing a specific action such as signing up for a service or buying a product. While this might not translate into business growth directly, it means that your CPA will not cost as much.
As a result, you'll have the chance to invest more money into your advertising strategy.
The Benefits of CPA Stats
You'll also have a larger budget for streamlining your website and its layout if that is something you've been meaning to do. Also, just because people aren't performing meaningful actions on your website doesn't mean that you aren't still growing your website.
As long as people see your ads and click on your ads, you are still increasing your brand awareness. Brand awareness is very important because otherwise, people won't know that your business exists in the first place. Suppose that a person discovers your website by clicking on one of your ads.
Then, once that person arrives at your website, he clicks away. This might not seem immediately beneficial to you, but that person now knows that your website exists and that it has certain products to offer. In the future, that person might think back to your website and might be tempted to go back there and pay for a product or service.
So, even if your CPA stats are low at the moment, that doesn't mean that they'll always be. Ultimately, a low CPA is almost as good as a high CPA as it will still help drive more people to your website and make people more familiar with your website.
How to Achieve a Better Result With CPA Advertising
You might be wondering what you should do about a low CPA, especially if your CPA has been low for quite some time. As mentioned before, having a low CPA isn't all that bad, but if it is low all the time, it isn't going to be super effective. At the same time, you won't want your CPA to be too high either because then you would be spending a lot of money on acquiring customers which also isn't ideal.
Fortunately, there are several ways in which you can improve your CPA stats so that you can acquire as many customers as possible without breaking the bank. To start, you will want to make sure that your website's landing page is the best it can be.
When a person clicks on your ad, your landing page is likely the first thing they're going to see. If your landing page isn't all that appealing, the online user will get a bad first impression, get bored, and leave your website. To fix this problem, you will want to make sure that your landing page not only looks great but also has a great message.
You will want some text to briefly show what your brand is all about and why a person should buy from you. Appealing to the point of view of your potential customers is key. If you can prove that your brand has something that can satisfy a certain group of users, those users will be more interested in seeing what your website has to offer.
You will also want to make sure that your brand is targeting the right kind of audience. If you're targeting an audience that isn't particularly interested in the products or services your brand has to offer, it won't be much of a surprise to find that very few people will end up performing important actions on your site.
Understanding your site's analytics can help you hone in your target audience. That way, you won't have any problem ensuring that your brand is targeting a group of people that is interested in your brand's products.
What You Need to Know About Cost Per Acquisition Advertising
Cost per acquisition advertising is essential to the success of your business. It measures how many people end up performing a vital action such as purchasing a product from your website compared to the cost you spend on advertising. Understanding CPA is key if you care about honing your website's earning potential.