Measuring Cost Per Acquisition – What is it and Why?

It’s a tough world out there for retail businesses. With savvy consumers prepared to spend longer searching for the best deal and not succumbing to normal marketing techniques, retail businesses are having to find new ways to ensure they get the most out of their marketing campaigns.

It can often be difficult to pinpoint exactly what works and what doesn’t, especially when it comes to measuring metrics and that can often contradict each other or be too close to call. While CTR (Click-Through-Rate), CPC (Cost-per-Click) and conversion rates should all still be considered, there’s one particular metric that marketers should be using to make more profitable decisions: CPA (Cost per Acquisition).

What is CPA?

CPA is different to measuring the Cost per Conversion, which can include anything from social media likes to making a purchase, because it focuses more intently on the cost involved to turn a prospect into a customer. This is why CPA is so relevant; it allows you to determine your true return on investment, meaning you can identify which campaigns are the most cost effective and will generate more revenue should you push further.

Determining CPA

So, how do you work out the Cost-per-Acquisition? The first thing you need to do is work out your average revenue per customer, that way you can see what your average profit is and have something to measure against.

Annual Revenue divided by Annual Customer Count = Average Revenue per Customer

To work out your CPA, select a time period to work from – let’s say annually – and divide your marketing spend for that period by the number of customers acquired.

Annual Marketing Spend divided by Annual Acquired Customers 

This then provides you with an indication of how much it will cost for you to acquire one customer. When you think about it, this is the most important metric you need to know in marketing. Finding out how much you have to spend on marketing to get a paying customer will completely revolutionise how you manage your budget.

If you’re a non-eCommerce business, it’s still easy to work out your CPA. Instead of a purchase, you can follow the same formula as above when talking about other values. For example, you can work out how much you have to spend to sign up for a new lead. Depending on your campaigns and what you are trying to achieve, you might value different interactions at different rates.

Tracking Cost per Acquisition

In eCommerce, it’s easy to track your CPA, all you have to do is look at where your sales are coming from, using custom links will make this process even easier. It does become more difficult if you don’t belong in the eCommerce bracket, but you can still track your CPA with tracking codes, custom links and by implementing a CRM system. Talking to your customers via surveys will also help you determine their source.

If you need help measuring the success of your marketing campaigns, seek the help of a digital agency like us, who can take control of your metrics and provide you with a detailed analysis of your marketing strategy. Get in touch today.