Digital Marketing Dictionary

What is CPA (Cost Per Acquisition)?

urely you have heard of Cost Per Acquisition (CPA) which is used especially for digital marketing advertising, email marketing campaigns and also in E-commerce. Generally speaking, the CPA refers to an advertising cost that is only paid when a sale is made and only if a new user is obtained.

The process is simple: a user views the advertising, clicks on the ad and performs an action on the web, a sale or the generation of a lead or contact.

The acquisition cost allows you to measure marketing campaigns and especially establish what is the  return on investment (ROI) of a campaign. That is, with the CPA we know the investment cost and the number of sales of a campaign.

The CPA payment system consists of a fixed or variable price. When we refer to the fixed price, the advertiser will pay the same value for each sale made, and the variable price indicates that the advertiser will pay a certain value to the publisher on the sale made through an ad or online campaign.

To see it better, an example of fixed price goes well when we have an e-commerce with rather low prices. It is also possible to agree on a percentage based on the price of the cart and thus the advertiser will pay a percentage as a commission in relation to the sale according to the ad.

In short, when this CPA is higher than the profit margin, the strategy is not profitable.

In which ads do we use it?

CPA is used in certain advertisements such as display advertising campaigns, remarketing and affiliate marketing, especially in Spain. Some examples are those discounts and one-off campaigns to attract customers or build loyalty. 

To achieve this, it is important to segment a campaign in order to reach our buyer persona.

How to calculate the CPA (Cost Per Acquisition)

The formula used to calculate the CPA is:

CPA = total cost/number of acquisitions

That is, we divide the total cost of the advertising campaign by the number of conversions. Thus, if a campaign has a cost of 1,500 euros, and we have achieved 250 conversions, the cost per conversion is 0.60 euros. CPA = 1.500/250 = €0.60

Marketing Acquisition Cost Advantages

  • You can measure and secure the ROI profitability of each campaign.
  • Enables analysis of campaign results.
  • Mostly used in e-commerce
  • Through CPA, we measure the cost of the ad, the campaign and we also know the number of sales achieved.
  • It is usually an affordable method because the advertiser only pays when the sale is made.
  • Suitable for traffic campaigns or conversions.

Does it have disadvantages?

Cost per Acquisition (CPA) is profitable but it also has some drawbacks, such as being a method that is mostly used for companies that have been in the market for some time.

There are businesses and websites that do not want to use this method because they offer advertising space and may not receive anything in return when the campaign does not work or has not been successful.

Another disadvantage is that the cost per action is somewhat higher than CPM or CPC campaigns, other email marketing performance measurement systems.

Nor is it a system that works well in branding campaigns. In this case what we want is to reach many people at the same time so that they know and remember the brand. Another marketing measurement model would be used.