In the world of online marketing it is very easy to go crazy with so many metrics, indices and acronyms.
Today at Boardfy we are going to try to explain in a simple way what CPA is, when it is convenient to use it and how it is calculated.
To begin with, what is the meaning of CPA?
This acronym stands for cost per acquisition, which should not be confused with cost per share, which is a different term.
CPA is the fee an advertiser pays to the advertising platform for each new customer who completes a specific action, such as making a purchase or signing up for a service.
If you have done or are thinking of doing digital marketing campaigns, you will know that there are different payment methods.
CPA (cost per acquisition) is one of the most advantageous online advertising payment types for the advertiser… at least in theory.
Why?
Because you only have to pay for that ad when the user makes a purchase.
If there is no sale, you don’t pay.
Sounds good, doesn’t it? Is there a catch?
Well, more than a catch, simply before launching an advertising campaign using this payment method, you should take into account certain aspects.
Which ones?
We explain them to you in this post!
Use of CPA in digital marketing
As we have already told you, this method is a priori quite advantageous for those who invest in advertising, but sometimes not so much for the company that gives its advertising space.
The explanation is simple: you risk not receiving any remuneration if no purchase materialises through a campaign ad. This is why it is sometimes difficult to find companies willing to accept this form of payment.
Moreover, this method is not suitable for all types of campaigns.
Types of advertisements in which CPA is used Online shops (e-commerce) are undoubtedly the ones that are most committed to this payment method.
In order to opt for this method, it is necessary to be able to unequivocally quantify the purchases made. This is why it is only used for short-term sales.
Do you want some examples of where CPA can be used?
- Google Ads campaigns.
- Lead acquisition campaigns.
- Social media campaigns.
- Remarketing and affiliate marketing campaigns.
- Email marketing campaigns.
It should be noted that, in order to determine whether or not opting for CPA will be profitable, it is important to take into consideration the customer’s life cycle. In other words, if there is the possibility of it extending beyond this initial sale. In this case, the profit will be higher.
Advantages of cost per acquisition in online marketing
One of the main advantages of CPA is that it is a “risk-free investment” if you make sure that the CPC (cost per click) is never higher than the desired profit margin. If this is the case, you have a guaranteed ROI (return on investment).
Moreover, it is independent of the number of visitors to the website or web page and the ad impressions, which often do not lead to a sale.
Disadvantages of cost-per-acquisition online marketing
One of the biggest disadvantages is that it is difficult to find companies willing to accept payment for CPA advertising.
On the other hand, it is not applicable to all types of advertisements. For example, actions to promote a brand (branding) are not eligible for this method. In this case, it is advisable to opt for other payment methods, such as CPC (cost per click), CPL (cost per lead) or CPM (cost per thousand).
In addition, as in any campaign, if you do not carry out a correct segmentation, you will not achieve the sales objectives set.
And, most importantly, you must always be clear about your profit margin. Otherwise, you run the risk of the CPA amount being higher than this, with the consequent financial loss that this entails.
How to calculate the cost per acquisition or CPA?
Don’t know how to calculate the CPA?
Don’t worry because the CPA formula is very simple. If only all calculations were as easy as this one:
In other words, you have to add up everything you have invested in marketing actions to sell that or those products (acquisition costs) and divide it by the total sales or leads you have achieved in that way.
In any case, if you have chosen to do a CPA campaign, the cost per conversion will have been fixed beforehand.
This amount can be:
- Fixed price.
- Price per percentage.
That is to say, sometimes a specific price is agreed for each acquisition and other times a percentage of the total sale is fixed.
Do you know about Google Ads smart bidding based on target CPA?
If you run a Google Ads campaign you can choose to bid automatically by telling Google the maximum CPA you are willing to pay per sale achieved.
Google uses the above performance data to produce an estimate to help optimise results.
But… did you know that it’s not the only one who knows how to do that?
Or even more, did you know that there are many other things that can be done to increase not only your sales but also your profit margins?
Try Boardfy and feel the change
Boardfy is the world’s fastest Dynamic pricing and monitoring tool.
And what is it for?
Among other things:
- Identify your competition. Item 2
- Monitor their prices and anticipate their movements.
- Discover in which products you are competitive, with what margin and what products your
- ompetitors offer that you are not offering.
- Calculate your costs and know your commercial margin in real time.
- Automate price increases and decreases according to your strategy.
- Optimise your campaigns.
Are you already clear on what a CPA is?
Let’s recap.
The meaning of C.P.A. is Cost Per Acquisition and it is a very advantageous form of payment in certain types of online advertising campaigns. These include remarketing and affiliate campaigns.
If you have your margins well set, this type of payment ensures a return on your investment.
Do you want to minimise CPA and increase your profits?
If you have an e-commerce and you don’t know what Boardfy can do for you, you are losing money every day:
- Set smart, fully automated pricing strategies on any platform you sell on.
- Optimise your Google Shopping campaigns to the maximum, minimising investment and maximising sales.
- Keep precise control of your costs to make sure you never sell below your desired profit margin.
Don’t put off until tomorrow what can make you earn money today.
You have nothing to lose!
Request a free demo and discover how Boardfy can change your business.
