What’s a Great Cost per Acquisition [2023?]
Are you trying to crack the code for a profitable marketing campaign? Well, look no further because we have the answer – the cost-per-acquisition formula!
Yes, you heard it right.
We're going to talk about CPA, the secret ingredient to a successful marketing campaign.
Get ready to learn everything you need to know about CPA – what it is, how to calculate it, and, most importantly, what's the CPA you should aim for?
But, first…
What’s the Cost per Acquisition?
Cost per acquisition (CPA) is a marketing metric that measures the total cost incurred to acquire a new customer or lead.
It calculates the cost of each conversion by dividing the cost of your marketing campaign at a specific time by the number of new customers or leads generated.
(Will explain the cost per acquisition formula below)
CPA is an important metric as it helps businesses determine the effectiveness and profitability of their marketing campaigns.
How to Calculate Cost per Acquisition?
Let's say you spent $10,000 on a marketing campaign that generated 100 new customers.
The cost per acquisition formula is:
CPA = Total Cost of Campaign / Number of New Customers
So, plugging in the numbers, we get:
CPA = $10,000 / 100 => CPA = $100
Therefore, the cost per acquisition in this example is $100 per new customer.
Unlocking the Profitability of Your Marketing Campaigns: CLV + CPA
Why is it important to understand what your CPA is?
It's because CPA is the key to unlocking the profitability of your marketing campaigns.
Without knowing your cost per acquisition, you could be throwing money down the drain on ineffective campaigns.
But wait, there's more! Not only does CPA help you determine the effectiveness of your marketing campaigns, but it also has a direct correlation with customer lifetime value (CLV).
Let me explain.
Customer value refers to the total amount of revenue a customer is expected to generate over their lifetime as a customer.
The higher the customer value, the more profitable the customer is for your business.
Now, let's say you're running a marketing campaign with a high CPA.
That means you're spending a lot of money to acquire each new customer, which may seem like a bad thing.
But what if those customers have a high customer value?
Suddenly, that high CPA doesn't seem so bad anymore because those customers will generate more revenue for your business in the long run.
On the other hand, if you're running a marketing campaign with a low CPA, that may seem like a good thing.
But what if those customers have a low customer value?
Then, you're essentially wasting money on acquiring customers who won't generate much revenue for your business.
The bottom line is that understanding your CPA is crucial for optimizing the profitability of your marketing campaigns.
By analyzing the correlation between customer value and CPA, you can identify which campaigns are worth investing in and which ones need to be re-evaluated.
So, What’s a Good Cost per Acquisition?
The ideal CPA varies depending on various factors such as industry, business size, marketing goals, and location.
However, in general, a good CPA is one that allows you to acquire new customers or leads at a reasonable cost while still generating a profit.
For some businesses, a CPA of $50 might be reasonable, while for others, a CPA of $200 might be considered acceptable.
It all depends on
- the profit margins,
- lifetime customer value,
- marketing goals.
To determine your ideal CPA, it's important to:
- analyze your historical data,
- set benchmarks based on your industry standards,
- continuously monitor
- adjust your marketing campaigns to achieve the desired results.
If you want to optimize your CPA costs, then you can find this Hubspot blog helpful.
Bottom Line
Understanding your cost per acquisition (CPA) is crucial for the success of your marketing campaigns.
It helps you determine the effectiveness of your campaigns, optimize your marketing spend, and (of course) maximize your profits.
Remember….there's no one-size-fits-all when it comes to the ideal CPA, as it varies depending on various factors.
However, by continuously monitoring and adjusting your marketing campaigns, you can achieve your desired results and unlock the profitability of your business.
