Money spent on digital marketing doesn’t have to disappear into a black hole. Times are changing, and working with the right team and tools can help you to keep track of this spend. By ensuring you have a firm grasp on your metrics, you’ll be able to sift through the hype and understand if your marketing investment is really paying off.
While you might be mildly impressed by the click-through rate or the cost per click, there is really only one metric that can help you to understand if your campaigns are working like they should, and that is the cost per acquisition. Unlike other metrics, cost per acquisition is the only real way to determine your return on investment. We’ve put together this simple guide to help you get your head around CPA and understand why it’s the only metric that matters.
What is CPA?
The CPA, or cost per acquisition, is the amount of money spent on turning an individual into a customer. In the digital marketing world, you might have several different marketing channels available to you. The easiest way to calculate the cost per acquisition is the divide the number of new paying customers that a campaign generates by the amount spent on the campaign.
When business owners talk about the ROI and CPA of digital marketing, they really want to know that the money generated from these channels is more than the money spent on them. It’s more valuable than a metric such as the cost per conversion, as a conversion can be a lot of different actions. For example, a conversion could be a customer purchasing a product, sending an enquiry or signing up to the mailing list. While all of these actions are valuable to a company, only the first one is generating any revenue. However, if a user signs up to your email marketing campaign and later becomes a customer, then the cost per acquisition would be the total spent on all the marketing channels.
How do I Track CPA?
In order to be able to track CPA, you need to know where your sales originate. This means you need to be able to track which channels your customers are using to land on your site. For example, your SEO efforts will primarily be shown as organic traffic, while influencer marketing might be seen in social or referral traffic. If you are strict and disciplined with your tracking codes, it becomes a lot easier to attribute sales to different channels.
Spending money on digital marketing without putting accurate tracking in place is tricky territory, as you will never be able to see if your hard work is paying off. If you’re unsure which tools are the best for reporting, we would recommend Google Analytics – this is the industry standard, we also use Dashthis to consolidate the results across all the channels.
Another common problem that companies face when trying to justify their marketing spend is that they focus entirely on driving people to the website. The theory is that if there are enough eyeballs on the site then some of those are bound to convert and become customers. This isn’t necessarily true and can cause problems when it comes to justifying marketing spend. Again, this is why cost per acquisition is such a valuable digital marketing metric. Rather than looking at how many people are landing on your site, it looks at how many of those become paying customers.
Some industries have a naturally high cost per acquisition, so this is where industry expertise comes in handy. If you are concerned that your CPA is too high, the first thing to consider if this is just the case for your industry, or if there are issues with your site. Otherwise, you might want to investigate if conversion rate optimisation could help to lower your CPA.
What should my CPA be?
A common question we hear is: “how much does it cost to generate a new lead or sale online?“. This will vary depending on your business and the industry that you are in. In reality, there is no ideal CPA, but all business owners will simply want it to be as low as possible. The first step to improving your CPA is to make this a key metric that you track on a regular basis.
Once you have an understanding of where you stand, it will become much easier to look for areas of improvement. Once you know your CPA, be it £2.19, £45 or £355 you can start to look at the lifetime value of a customer and decide if your cost per acquisition is worth it. From here, you’ll have a more accurate view of your return on investment.