Glossary - Cost per acquisition (CPA)

CPA, which stands for Cost per Acquisition, is a widely used metric in the online advertising space. 

Here's what is is, how to calculate it and why it is an important metric to track.

What is cost per acquisition (CPA)?

Cost per acquisition (CPA), or cost per action, is a metric used to calculate the cost of a specific action that results in a desired result, for example, signups, downloads, and activations. This metric focuses on the cost of acquiring one user on a certain channel or from a specific ad campaign.

This metric focuses on the cost of a user's action leading to a conversion. So, if you want to know how much it costs per user to click a link, press download, or take any other specified action, you'll use this metric.

CPA can be used to measure the marketing success of a campaign or a digital marketing channel — or to calculate success across all channels and tactics. However, this can be challenging, as varying campaigns are driven by different factors and costs — like a Facebook ad vs. an email or SMS campaign.

How to calculate CPA

As an example, at a campaign level, the cost per acquisition formula would be:

Cost per acquisition = total campaign cost/conversions (customers)

Here is a more specific example to calculate the cost of ad spend:

Susan runs an online ad on Facebook and Google to promote her online toy store. She ran the ad for seven days, which cost her $1500. During that time, she had 56 conversions (people clicking on the ad to visit a landing page).

So, the CPA would be $26.79 ($1500/56).

Consider other metrics alongside CPA

Metrics like CPA can help you evaluate the success of ongoing campaigns to stretch marketing dollars even further. These kind of metrics allows marketers to make more informed decisions. 

While CPA is a powerful metric on its own, make sure toalso calcuate other metrics, including return on ad spend (ROAS), return on investment (ROI), and Customer Lifetime Value. CPA will tell you if your strategy should be revised — which is the case if you have a higher CPA than expected. However, you will not be able to see the full big picture like you would if you considered other metrics and KPIs.

Once you have determined your CPA, lean heavily on your marketing ROI data. These two metrics are tied to one another, helping you ensure each dollar is put to good use. A lower CPA typically means better use of your advertising budget, offering a feedback mechanism for ROI. Use this information to better guide target CPA bidding.

CPA vs. CAC

While often used interchangeably with customer acquisition cost (CAC), these metrics differ in that CAC measures the cost of acquiring a paying customer. In contrast, CPA is the cost of acquiring a lead (or a non-paying customer). So, how much does it cost to get one user to subscribe to your email or start a free trial?

CPA is more of a campaign-level metric, often focusing on the specific cost/profit ratio of particular marketing channels.

Think of it this way: If you own an e-commerce shop and someone creates an online account without purchasing, that user is measured using CPA. Once they make a purchase, that user is measured using CAC. Depending on your business and industry, the path to purchase may be short. However, some lead times take months or even years.

So, remember that the scope of measurement will differ when comparing CPA and CAC — and the impact of these metrics will depend on your business model. Use CPA to understand the cost-effectiveness and efficiency of specific channels and campaign success. Use CAC to gain a more comprehensive understanding of the total investment for the customers acquired.

Why does CPA matter?

There are many marketing metrics, each with advantages. However, many are also just indicators of success—like conversion rates. CPA is unique in that it is a financial metric you can use to measure the impact of your marketing campaigns directly.

This metric can be used in many paid marketing mediums, from social media and content marketing to PPC and affiliate campaigns.

Here are some other reasons why CPA needs to be on your radar:

• Effective budget management: When you better understand how much it costs to acquire a customer or for them to take a specific action, you can create a marketing budget more effectively.
• Analyze profitability: You can compare CPA to customer lifetime value (LTV) to determine if your current marketing strategies are profitable. If not, you can make data-informed decisions to improve.
• Optimize campaigns: You can use CPA to compare several campaigns. Take what you learn to implement the strategies that effectively bring customers in at lower costs.
• Better understand where to invest: Knowing where to throw money will help guide the types of business decisions that pay off. A CPA can provide insight into whether you should invest more in marketing, service quality, product improvement, etc., to drive customer acquisition.

How can you track CPA?

If you're a digital-first business, several methods exist to track cost per acquisition. These include:

• Using UTM parameters, you can generate link codes for affiliate or social media marketing.
• Exporting PPC campaign data from Google Ads (check out this Google Ads connector).
• Creating promotional codes and custom links for marketing campaigns.
• Implementing a CRM system like Hubspot and Salesforce.

How Funnel can help

One of the best strategies you can have is to put systems in place so that you have access to real-time feedback. This approach ensures you can make necessary quick decisions when aiming to save time and money. Without knowing the CPA, you will likely waste resources on marketing efforts that aren't working or underperforming ads.

If you're struggling to go from data to intelligence, Funnel can help. Connect all your platforms (choosing from 500+ connectors) to visualize your data in a way that tells the whole story.