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Our Cost-Per-Acquisition Guide: What to Know (Plus 12 Tips)

September 29, 2020
Ling Wong
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There are many metrics for tracking pay-per-click (PPC) advertising. But what exactly should you be measuring?

If your goal is to make more sales and generate more profits — meaning you want to lower ad spend while increasing the number of visitors who make a purchase — then you need to know your cost per acquisition (CPA).

Let’s find out what CPA is, why you should care about this metric and how to lower your campaign’s CPA to reduce cost and increase profitability.

What Is Cost Per Acquisition?

Cost per acquisition, also referred to as cost per action, is a marketing metric that measures the aggregate cost for acquiring one customer on the campaign or channel level. While the conversion event mostly refers to a sale, it also can be a form submission, an app download, a request for a callback, etc.

Simply put, it’s a short answer to “how much does it cost to advertise on Google?”

This metric is typically used to measure the results of paid marketing media, including pay-per-click (PPC) advertising, affiliate marketing, display advertising, social media marketing and content marketing. It also can be used to gauge the effectiveness of other channels, such as SEO and email marketing, which don’t incur direct advertising expenses but still require overhead such as production cost.

Here’s how to calculate cost per acquisition: 

Average Cost Per Acquisition = Total Campaign Cost / Number of Conversions

You also can use an online cost per acquisition calculator (such as this one from the Online Advertising Guide) to help you determine your CPA.

Why Is CPA Important?

CPA is a vital measure of marketing success. Unlike indicators such as the number of site visits or conversion rates, CPA is a financial metric that directly measures the revenue impact of a marketing campaign.

By considering data such as average order value (AOV) and customer lifetime value (CLV), you can determine a target CPA for your customer acquisition campaigns to ensure that you aren’t only getting new customers but staying profitable.

How Is CPA Different From CPC?

In PPC advertising, you’d often see a similar term called cost per click (CPC), which is the amount you pay every time your ad is clicked. However, it doesn’t tell you if the click leads to a conversion.

When you run a CPA campaign, you only pay when a conversion event happens. Instead of just driving traffic, CPA helps you track prospects’ actions after clicking on an ad to make sure you’re attracting high-quality prospects.

Even though each conversion in a CPA campaign costs more than a click in a CPC campaign, you’ll be charged fewer clicks because you only pay for those that convert. As such, CPA Google Ads campaigns tend to be more profitable for marketers who have optimized them.

How CPA Is Applied to Different Industries

You might wonder, what’s a good CPA to aim for? 

While you should try to lower the CPA as much as possible, the exact value depends on your industry and campaign goal. You can start with cost per acquisition by industry as a benchmark to see where you stand:

  • According to search marketing company WordStream, the average CPA in Google Ads across all industries is $56.11 for search and $90.80 for display network.
  • The computers and computer electronics industry, as well as business-to-business, real estate and technology industries, have the highest average CPA of more than $100.
  • The auto industry has the lowest CPA, which is about $30. Other industries that have low CPA include ecommerce, employment services and travel.

Regardless of industry, advertisers can typically get a lower CPA on search networks because users have higher purchase intent, which means they’re seeking the exact product or service that’s being advertised and are more ready to buy.

Your CPA affects your profitability, so it’s important to determine your target CPA by defining each campaign’s objective.

How to Track a CPA Advertising Campaign

Your CPA affects your profitability so it’s important to determine your target CPA by defining each campaign’s objective (e.g., profitability and brand awareness), analyzing past performance and researching industry average. 

You also need to identify the conversion event and set up conversion tracking with the appropriate technologies:

  • Export PPC campaign data from Google Ads into analytics software.
  • Use Urchin Tracking Module (UTM parameters to track visitors’ behaviors based on traffic source.
  • Set up promotional codes and custom links.
  • Implement a customer relationship management (CRM) system to track customer activities and lifetime value over time. 

12 Ways to Optimize Cost Per Acquisition for Your PPC Ads

Remember the cost per acquisition formula? 

Average Cost Per Acquisition = Total Campaign Cost / Number of Conversions

A lower cost per acquisition often translates into higher profitability. To bring down your CPA, you can reduce the cost of the campaign by attracting more high-quality clicks and/or increase the number of conversions by making it easy for visitors to take action. Here’s what you can do:

1. Refine Your Audience Targeting

You can lower the campaign cost by refining your audience segmentation to attract visitors that are most likely to convert. For example, by identifying and excluding geographic locations where low-converting clicks come from.

To get the data, log on to your website’s Google Analytics dashboard and select Audience > Geo > Location. You can view conversion rates based on each region to see where your customers are located. Then, adjust your Google Ads audience targeting to stop serving ads to users in lower-converting areas and double down on high-converting locations.

2. Improve Your Quality Score

Google determines CPA based on an advertiser’s Quality Score, which is a Google Ads rating of the overall user experience delivered by your ads and landing pages. It’s affected by your expected click-through-rate (CTR), ad relevance and landing page design.

You can improve your Quality Score, which will lead to lower ad spending, with better ad structure. For instance, you can use single keyword ad groups (SKAGs) to ensure that each ad group is targeting the most relevant search terms and highest performing keywords. Also, you should pause keywords that have a very low CTR and almost no conversion.

3. Optimize Your Ad Creatives

Your ad copy should speak to the target audience and clearly communicate the product or service you’re advertising. This not only will attract more clicks but deliver a cohesive user experience that drives conversions.

Increase the effectiveness of your ad copy by tapping into your audience’s emotional triggers, such as the fear of missing out (FOMO). Focus on your unique selling points and use statistics to add credibility (e.g., how many clients you have helped). You can use the copy to address potential objections and use Google Ad’s countdown feature to drive traffic that’s ready to make a purchase.

4. Create Dedicated Landing Pages

Improving the landing page experience can raise your quality score and lower campaign cost. Instead of your homepage or a generic product page, send traffic to a dedicated landing page that aligns with the message and keyword of the ad group. The landing page should reiterate the benefits and offer in the ad copy to deliver a consistent user experience that’ll increase conversion.

You should eliminate distractions on the landing page, such as removing navigation and other links. Make sure the call to action (CTA) is prominently displayed and positioned close to the top of the page to minimize scrolling on mobile devices. Also, use compelling images and make sure the copy is easy to scan (e.g., utilize bullets.) 

5. Show Your Ads Only Under Optimal Conditions

After you have analyzed your results and found out the conditions under which the ads perform best, you can adjust the settings to make sure they’re shown under those ideal conditions as much as possible. Use Google Ads’ IF function to turn your insights into action by making your ads more relevant, timely and targeted.

Use Google Ads’ IF function to turn your insights into action by making your ads more relevant, timely and targeted.

For example, you can use the IF function in a retargeting ad to offer a discount to visitors who have put products in the cart but haven’t yet made a purchase to entice them to complete the purchase.

6. Adjust Your Bids Regularly

Your bidding strategy can have a significant impact on your CPA, so it’s important to monitor and fine-tune your bids regularly as consumer demands and market condition changes. By reviewing your campaign dashboard, you can get insights about the behaviors and preferences of your target audience and make the necessary adjustments.

Use Google Ads’ bid modifiers to get granular control over your campaign’s performance. For example, if smartphone users are more likely to make a purchase, you can increase the bid on mobile searches by a specific factor.  The most common bid modifiers are device, location and scheduling. You also can explore advanced options such as targeting method, remarketing list, call adjustments and demographic.

7. Update Keywords and Negative Keywords

Your search term report can help you discover keywords that trigger your ad and drive traffic. Look for search terms that you have missed and add them to your list of targeted keywords. Pay special attention to long-tail keywords, which are often used by searchers who are ready to make a purchase.

In addition, you should regularly update your negative keyword list to eliminate clicks that aren’t profitable. For example, a keyword may attract customers who purchase a product that yields a $20 revenue. However, if the CPA comes out to $40 and the customers aren’t likely to return for more purchases, you could be losing money with every sale. In that case, you may not want to have the ad triggered by that specific search term.

8. Schedule Your Ads at the Best Time

Analyze your campaigns and see when they yield the most clicks and conversions. Google Ads allows you to customize your settings so the ads are only triggered during specific days and times. For example, a local business may run its ads only when the store is open. 

You can experiment with bidding down your CPA or using ad scheduling bid modifiers to adjust the bids during different times of the day to see how much you can save on ad spend. You should monitor the results closely to make sure that lowering your bid isn’t impacting the conversion rates.

9. Improve the Mobile Experience

As more consumers are searching and making purchases on smartphones and tablets, you need to deliver an outstanding user experience on mobile devices. Not only should your landing page be mobile-optimized but the entire user flow (e.g., the checkout process) should be designed with a mobile-first approach to maximize conversion.

Make sure your landing page loads quickly to prevent impatient visitors from clicking away. Test it on popular devices and browsers to ensure that the content is rendered properly and legible on small screens. Also, the CTA should be big, easy-to-click and placed close to the top to minimize scrolling.

10. Implement Conversion Rate Optimization Strategies

Since your conversion rate is part of the CPA formula, you can lower your CPA by increasing the number of conversions. As such, you should optimize the entire user flow that leads up to the conversion event by implementing the latest conversion rate optimization (CRO) best practices.

If the conversion event is making a purchase on your website, you need to reduce friction along the checkout process. For example, by including live chat to provide visitors with assistance when needed, offering multiple forms of payment options and using mobile-specific features such as autofill and location services to make filling out forms easier.

11. Test Your Ads

A/B testing is the key to making sure that you’re using the most effective copy for each audience segment. Set up at least 2 different ads to be tested against each other in each ad group to find out what works best. By testing consistently, you can make incremental improvements that’ll add up to significant gains.

You can test the headline copy (e.g., whether to include the search term), the description (e.g., which feature and benefit to highlight) and the CTA to find out what works for your audience and what doesn’t. As with any split testing, you should change only one element at a time to yield meaningful insights.

12. Experiment With Target CPA Bidding

Google Ads offers target CPA bidding, which uses machine learning to optimize bids for each auction so advertisers can maximize conversions for their target CPA. The artificial intelligence-driven technology analyzes real-time and contextual signals (e.g., device, browser, location, time of day, remarketing list, etc.) and set bids across all campaigns to achieve an average CPA equal to a preset target. 

You can find out if this approach works for you by setting a lower target CPA than before to see if you can still achieve the same result with a reduced ad spend. The effectiveness of target CPA bidding varies across industries so you should monitor the campaigns’ metrics and keep the whole performance picture in perspective.

Experiment with target CPA bidding.

Get More Conversions for a Lower Cost Per Acquisition

Many factors can impact the CPA of your PPC ads. What works for others may not work for your industry or business. You need to experiment diligently and systematically so you can reduce the cost of acquiring customers with high lifetime value while maximizing conversion rates. 

If you’re new to PPC, you can achieve quick wins by improving your targeting strategy, ad copy and landing page design. If you already have plucked the low-hanging fruits, then it’s time to explore advanced tactics such as increasing Quality Score, improving ad structure, implementing the IF Function, using bidding modifiers and scheduling your ads. However, you’d most likely need to experiment with them one at a time so you can isolate and understand the impact of each.

The more diligent you are with testing different variables and adjusting your campaigns based on these insights, the more likely you’ll succeed in lowering your campaign cost and increasing your conversion rate so you can pay less for each customer acquired and increase your profitability.


Ling Wong

Ling Wong has more than 15 years of experience in the realm of online marketing. She writes about business-to-business marketing, customer experience, search engine optimization, the latest in marketing technology and online marketing for small businesses.

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