Cost Per Acquisition
Cost per Acquisition defines the cost of a customer that completes a specific action. Putting it in simple words, Cost Per Acquisition is the cost of acquiring a customer after running a campaign level.
You invest in marketing activities to increase the sales of your product or service. And in marketing, it is not just about investment but also measuring revenue after investment.
Revenue can be evaluated by monitoring the conversion rate, which indicates a marketing campaign’s success. It also informs about the action completed by the customer, which can be a click, purchase, lead, or other options that depend on marketing goals.
Cost per Acquisition= Campaign Cost/ Conversions
Anant ran a marketing campaign for his new online jewellery business. The total cost of his marketing campaign was Rs.10,000, and from the whole campaign, about 1000 conversions. With this, CPA 10,000/1000= Rs.10.
Quick Points about Cost Per Acquisition (CPA)
- There is no standard Cost Per Acquisition.
- CPA calculations will depend on industry, prices and products.
- The lower the ad cost is, the better the ad campaign is.
- Cost per Acquisition (CPA) is lower than Customer Lifetime Value (CLV), and the better the ad campaign performs. Customer Lifetime Value is the total amount of money the customer will spend on your company’s product.
- A higher CPA might indicate that the strategy for marketing needs to be revised.
Ways to acquire quality Cost Per Acquisition
Every business has a different idea of investment in marketing to acquire customers. It is about checking how much they can afford to pay for customer acquisition.
Some factors that affect the cost per acquisition:
- Financial Goals: Defining financial goals depends on the stage of the business. Based on the growth stage, you can finalise a budget for investment into ad campaigns.
- Retarget customers: Retargeting is a strategy businesses use to get customers to think again about the value they provide. Customers that visit a corporate website and stick around do so because they are interested in the things offered. Within four weeks of exposure, retargeting can lift more than 1000% in trademark search volume. Retargeting is one tactic that can significantly increase consumer conversion rates.
- Improve customer retention: It is simpler to persuade existing consumers of a business’s value than to convince new customers who have not yet dealt with the brand. Companies can improve their customer acquisition costs by boosting their return customer rate, buy frequency, and average order values. Tactics like customer education programmes, loyalty programmes, and loops for consumer feedback can add to reducing customer acquisition costs.
- Affiliate Programs: Affiliate programs can also help to reduce customer acquisition costs. The program is becoming increasingly popular because it benefits influencers and the companies.
- High engagement with quality content: Provide meaningful content that educates the customers more and helps them build trust with their brands. But to make it an effective strategy, you must assess the content’s performance and optimise the factors that can help to improve the ranking. The higher the ranking, more the probability of customer acquisition.
- Improve the sales funnel: By improving a sales funnel, a business converts leads into paying clients. Sales funnels are crucial when attempting to lower the cost of customer acquisition. A strong sales funnel delivers a wealth of data and offers the business insight into the perspectives of its potential clients. Understand the motive of the buyers and then propose a reason to buy. Maybe then it is highly likely to click and take action.
- Marketing automation: Marketing automation can help businesses by cutting costs on menial tasks. Automation can improve conversion rates and reduce the cost of acquisition.
Ways marketers optimise Cost per Acquisition
You need to optimise cost per acquisition to motivate the customers to purchase. Make a compelling ad copy on the landing page that pushes the customers to take some action.
- Rouse customer’s excitement: Rouse curiosity in the audience so they respond to your ad copies. Highlight the benefits of the product or service in the ad copy so that the customers take some action after clicking on the link.
- Drive emotions: Drive emotions that form the behaviour of the people. Customers who associate a feeling with your brand are more likely to buy it.
- Design a simple landing page: Make the landing page accessible and straightforward. Create compelling copies and intriguing headlines so that users take some action.
What is a reasonable Cost per Acquisition Cost?
A reasonable Cost per Acquisition can be 3:1, which is 3 times lower than the Customer Lifetime Value. If the ratio is 1:1, your customer acquisition cost is higher.
Is the cost per acquisition the same as the cost per conversion?
Cost per acquisition is the same as cost per conversion, which indicates a user’s conversion cost.
Which is better, high or low CPA?
A low cost per acquisition is better because that is the amount you invest on one user to make the final conversion of a single user.