Cost Per Acquisition (CPA): A Beginner’s Guide

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In the paid acquisition world, clicks can seem like the holy grail. But if you really think about it, clicks only tell you if people arrive to your content.

A better way to measure your content’s converting capabilities is cost per acquisition. This metric is a better indicator of whether your content is engaging and emotionally resonant enough to persuade your audience to stay and, ultimately, buy your product or service.

Read on to learn more about what exactly it is, the formula for calculating it, how its bidding process works, and some principles for crafting creative and convincing ad copy.

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Many marketers prefer the cost per acquisition pricing model because they can set their definition of an acquisition before they start advertising and only have to pay when their desired acquisition or action happens.

This pricing model is used in a handful of paid marketing mediums, including:

  • PPC
  • Display
  • Social media
  • Affiliate
  • Email marketing
  • Content marketing

Now let’s take a closet look at cost acquisition biddings.

AdRank is calculated by multiplying your maximum cost per acquisition bid with the quality score of your ad. Your quality score ad is impacted by your page’s relevance to the keyword, user experience, and click-through-rate.

This means organizations can’t acquire the top ranking for any keyword they want just because they have the biggest ad budgets. Their content has to be engaging.

cost per acquisition

In other words, Google wants to discourage bad advertisers from advertising bad content, so those with low quality scores will usually only acquire a high ad position if they pay a huge cost per acquisition bid. If they want to pay lower a cost per acquisition bid, they’ll have to settle with stooping at the bottom of the ad rankings.

Target CPA Bidding

To generate as many conversions as possible within the limits of your advertising budget, consider using Google’s target CPA bidding.

Target CPA bidding leverages machine learning to analyze your campaign’s historical conversion data, recommend an optimal average target CPA, and automatically optimize all your eligible bids to meet the average target CPA you set for all your campaigns.

If you use target CPA bidding, some of your conversions may cost more than others because your quality score or the competition in your ad auction might fluctuate, but Google will try its hardest to keep your cost per acquisition as close to your average target CPA as possible.

Cost Per Acquisition Formula

To calculate your advertising campaign’s cost per acquisition, take your total advertising spend and divide it by the number of acquisitions generated.

cost per acquisition formula

How to Lower Cost Per Acquisition (CPA) Costs

1. Optimize your ad copy.

Since your quality score — which measures how positive and relevant of an experience your content provides — is the most influential determinant in securing a top ad ranking, the best way to optimize your cost per acquisition costs is crafting compelling ad copy.

When you sit down to write ad or landing page copy, your goal should be to write something so captivating that it can grab the attention of a distracted millennial slouched in front of the TV, with their smartphone in one hand and a slice of pizza in the other.

One way to do this is by selling a feeling, not a product. Psychology tells us that emotions drive our behavior, while logic justifies our actions after the fact. Marketing confirms this theory — humans associate the same personality traits with brands as they do with people.

This is also the reason why pitching a product’s features is a lousy attempt at persuasion. Features only appeal to the logical part of your brain, which science suggests doesn’t drive action nearly as well as appealing to the emotional part of your brain does. So don’t just get creative with your copy — get emotional too.

2. Focus on customer retention as a strategy.

According to a 2021 HubSpot Blog survey, 57% of marketers say improving customer retention is an effective strategy for lowering CPA costs.

To state the obvious, acquiring new customers is often more costly than retaining existing customers. So, by focusing on customer retention, you can leverage the investment you’ve already made in acquiring your existing customers, reducing the need for additional acquisition spending. This ultimately leads to a lower CPA.

On top of that, repeat customers tend to generate more revenue over their lifetime compared to one-time purchasers. By focusing on customer retention, you can increase the customer lifetime value (CLV) of your customer base.

3. Enhance your landing pages.

Just because you’ve grabbed someone’s attention with your ad doesn’t mean your work is done. You still need to design a compelling landing page that clearly conveys the value of our offer.

In order to do this, consider piquing your audience’s curiosity with an intriguing headline and subheading, scrapping any external links from your landing page so visitors can only leave your paid acquisition funnel if they exit the page or convert, and test out video, which can explain the value of your offer in a more engaging way than text can.

If you want to learn how HubSpot creates landing pages that convert at 35% rate, check out this blog post.

4. Leverage your CRM to prioritize leads.

44% of marketers say using a customer relationship management software (CRM) to streamline their sales cycle is an effective strategy for lowering CPA costs.

cost per acquisition stat

The power of a CRM lies in its ability to centralize and manage your leads. Then, by organizing leads based on their stage in the sales cycle, you can prioritize your efforts on those with the highest potential to convert. As a result, you can avoid wasteful spending on leads that are less likely to result in conversions, leading to a lower CPA.

5. Conduct market research regularly.

How can you speak to your audience if you don’t know who they are?

43.5% of marketers say conducting market research to better understand their target audience is an effective strategy for lowering CPA costs. Market research helps you gain insights into the needs, preferences, and behaviors of your target audience.

Ultimately, targeted messaging increases the relevance of your ads and content, resulting in higher engagement, click-through rates, and conversions.

Plus, market research provides valuable demographic, psychographic, and behavioral data about your target audience. This information enables you to advertise on the right platforms and refine your targeting parameters.

Back to You

Marketers will chase vanity metrics until the end of time, and you might feel pressured to do the same, especially when your peers clamor on about their astronomical growth in views or clicks.

But if you ever feel tempted to jump on that train, remember, in marketing, the goal is to persuade someone to take your desired action. So incentivize your brand to resonate with your audience — that’s the thing that actually keeps people on your content and prompts them to act. And make conversions, not clicks, your carrot.

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