Cost per acquisition (CPA), also called cost per action, is a type of digital marketing payment structure in which the advertiser pays content publishers or affiliates whenever a conversion to attained. This is generally a significantly higher unit cost than other payment metrics; however, there is not wastage because the marketer only pays when they gain a new sale.
The relatively high unit cost can result in lesser margin. Furthermore, at a fixed CPA cost, the number of new acquisitions is directly limited by the marketer’s budget, unlike in a cost per impression or cost per click arrangement. This can make CPA campaigns inefficient at times. Fortunately, there are a few different ways to help to optimize CPA spending, generating the most new sales possible without paying too high of a price per acquisition.
Like other forms of digital marketing, CPA is centered on keywords and search terms. As such, more specific parameters will help to acquire the most lucrative customers. For example, if you sell bikes, you may find that the majority of customers are either looking for road bikes or children’s bikes. Focusing your CPA campaign on the higher return road bike market may be a good idea. Similarly, the rate for different customer profiles may be variable. Your aim should generally be to increase the number of high margin customers you are acquiring.
One of the most important numbers in marketing is customer lifetime value. This is the amount of revenue that will be generated by a customer over the entire length of their relationship with your business. CLV is typically examined as an average calculated by dividing the total amount of revenues generated by your business by your total number of customers. Further insight can be gleaned by calculating average CLV for specific groups of customers. For example, you may want to know the average CLV of a road bike customer versus a mountain bike customer.
As with all digital marketing, it is extremely important to test your campaigns. Fortunately, this is extremely easy to do in the digital realm and many advertisement networks offer a variety of tools for conducting A/B testing, also called split testing. Before you take a new campaign up to full scale, run a pilot to help determine the expected return on investment. This can prevent you from making missteps.
Ultimately, it is challenging to reduce CPA costs by a significant amount. However, a strong strategy can be to determine which advertisements tend to convert the most new customers. This can provide significant insight into what will work in cost per click or cost per impression campaigns. CPA campaigns can be an effective way to guarantee returns on new campaigns. Following this up with a more diversified strategy can enable you to greatly reduce the cost per acquisition.
Cost per acquisition is a powerful model for helping to guarantee results on a digital marketing campaign. Unfortunately, this certainty can come at a high price per conversion. As such, it may be necessary to optimize your CPA campaign over time. Using the above tactics will help to significantly improve the impact of your ad-spend on a CPA based marketing strategy.