Small Business Toolkit

Cost Per Acquisition Calculator

Cost Per Acquisition Calculator

Want to know how much it’s costing your business to acquire customers? Just plug in your spend and conversion rate, and we’ll calculate your cost per acquisition for you.

Calculate your Cost Per Acquisition

What is Cost per Acquisition (CPA)?

Chances are if you’ve landed here, you already know the answer to “what is cpa”.

Nevertheless, I want to make sure you’re 100% clear on the meaning of the metric you’re looking for, so here’s the lowdown.

Cost per acquisition is a relatively simple KPI to understand, generally, it tells you how much you’re paying for every customer who converts through a paid marketing channel .

While this is the general definition of the metric, some will say that CPA actually refers to new acquisitions only, but it’s up to you and how you’d like to use it which definition you’d like refer to.

Also known as:

Cost per action
Cost per conversion

CPA Related metrics

Conversion Rate

Average Order Value

Cost Per Visitor

Customer Lifetime Value

Revenue

How to Work Out Cost Per Acquisition

So how do you calculate cpa? Well, just like the definition, it’s actually pretty simple.

Here’s the formula:

Cost/# of Acquisitions = CPA

That right there is the simplest version of how to calculate cost per acquisition (the only thing simpler is using our calculator!).

Of course, one thing you do need to consider is, what do you define as cost?

Now there are many ways to define cost. It could be pure and simply the amount the budget of your marketing campaign. Or you could include the actual business costs involved such as salary, overheads etc.

The first method will tell you how much it cost the campaign to acquire the customer, the second will tell you exactly how much it’s costing your business to acquire that customer.

Why measuring CPA is important

The very nature of cost per acquisition is precisely why it’s so important. This metric is all about measuring the return on your investment so that you know that your marketing is creating profitable customers.

This can be particularly useful when you have a campaign that has resulted in the acquisition of several new customers, in fact it may even have your best conversion rate yet.

However, when you look at the CPA for these customers you might find that you’re actually paying more to acquire them than the purchases that they make.

In this case the campaign clearly isn’t working and needs some adjustments in order to make it profitable.

Without this information, you wouldn’t realise that the campaign wasn’t profitable until too late.

Benchmarks

Finding an accurate and reliable benchmark for cost per acquisition is tricky largely because different businesses will measure cost differently.

Larry Kim and the team at WordStream did put together this infographic covered some CPA benchmarks for Google Adwords.

(Image http://www.marketingcharts.com/online/google-adwords-benchmarks-by-industry-66039/attachment/wordstream-google-adwords-search-benchmarks-by-industry-march2016/)

However, the best way to benchmark your cost per acquisition target is by using your own data.

Customer Lifetime Value is the metric that will help you to do this. This metric tells you the total value of an average customer (essentially how much revenue the average customer drives over their lifespan). You can find out more about CLV here.

Measuring the ratio between CLV and CPA can help you keep track of how profitable your campaigns are.

The ideal ratio is suggested to be around 3:1, so that’s getting a return of 3 times the amount you spent to acquire them.

If you’re getting a ratio of 1:1 you’ll know you’re not getting your money’s worth. If you’re getting 6:1 you’ll know that you could afford to spend a little more and potentially acquire more customers.

How to Decrease Your Cost Per Acquisition

There are a few things to focus on when it comes to decreasing your CPA, those are: Improving your conversion rates, increasing average order value and encouragement of repeat sales.

Your main goal is to reduce your CPA to a point where it costs you less than you make from each customer on average.

One great way to achieve this is by being a lot more specific with your marketing.

If you want to decrease your CPA then you can try and only advertise on a marketing channel or platform you know your target audience tends to hang around.

This helps you reach your target audience, both new and old and helps you to reduce your CPA by excluding irrelevant traffic.

Here’s an example, let’s say you know your target audience uses Facebook over Twitter and other social media platforms.

If you advertise just on Facebook and rather than all social media platforms you might not be reaching as many people, but you’re going to be reaching a more relevant audience who are more likely to convert.

Another way to reduce your CPA is making sure your offer is enticing. It sounds so simple, but just putting the extra effort into your message and actual product itself can reduce your CPA.

Take a leaf from Amazon’s book and recommend your products to customers through emails, particularly recommendations based on purchases they’ve made. This is called cross selling.

Cross selling is the process of recommending customers products that other customers frequently buy together.

This can be applied, before during and even after purchase, and can really help you increase your CPA.

Sometimes a customer won’t even know they need an item until they see it. It might be that they’re new to a hobby and didn’t realise they needed those sweatbands to go with the rest of their gym equipment until they saw that other customers buy them too.

Alternatively, or as well as, with cross selling you can also try upselling products.

Upselling is the process of recommending products to customers that are essentially the same as what they’re about to buy, but better or higher quality.

Let’s take trainers for example, if a customer is about to buy some non-brand trainers you could suggest some better quality trainers, like Nikes.

The chances are customers may pay the little bit extra for the extra quality, they just need a hand realising it.

This helps to also increase your average order value and in turn reduces your CPA.

Conclusion

Overall the Cost per acquisition is important for any business, it gives you insight on whether or not you’re actually making a return on investment, where that return on investment stems from and channels you either need to work on or cut off.

CPA is one of the most important KPIs for most businesses and it’s not too difficult to work out (or just use our calculator!).

Just remember if you want to reduce your CPA your ultimate goal is to increase the return of each purchase a customer makes, whether it be by reducing costs or selling more in each order.