How to reduce cost per acquisition (CPA)

Marketing can be loosely defined as the act of paying to acquire customers. You have to spend money to make money, as the saying goes. But how much should you spend?

In cost per acquisition (CPA) you have a marketing metric that offers an answer to this question, and one of the clearest early-warning signs that a growth strategy is or isn't working.

In this guide we'll look at everything you need to know about cost per acquisition: what it is, why it matters, what a good ratio looks like, and how a data-led approach brings it down.

What is cost per acquisition (CPA)?

Cost per acquisition (CPA) is a marketing metric that measures the total cost of acquiring or converting a customer.

CPA considers all the marketing costs associated with driving prospects down the sales funnel within a specific campaign, from the very first touchpoint to the final conversion, then divides that total spend by the number of customers acquired or conversions achieved.

"Acquisition" and "conversion" can describe a wide variety of actions from a customer: from completing a purchase to simply submitting a form.

The basic formula for CPA:

Campaign cost ÷ total conversions = CPA

A basic example: if a $5,000 marketing campaign earned you 100 conversions, your CPA would be $50.

Why should you focus on lowering CPA?

A business should focus on lowering CPA because a lower cost per acquisition is simply better. The more you reduce your CPA, the less you pay to acquire new customers, and the more customers you can acquire for the same spend.

Measuring your CPA gives you a far clearer read on how effective your digital marketing actually is, and further analysis shows you exactly how to improve it. Monitoring and managing CPA can help with:

• Managing your marketing budget, knowing how much you need to spend to acquire a customer lets you form more precise budgets and better manage your spend.
• Optimising marketing campaigns, CPA lets you easily compare the effectiveness of different strategies to identify where your money is best spent within a campaign.
• Knowing where to invest, CPA can steer bigger business decisions, like whether to shift from marketing spend to investment in improving your offering to drive organic acquisitions.

Ultimately, lowering CPA earns you more business for less marketing spend, but a simple focus on CPA can offer a wealth of knock-on effects across the whole business.

What is a good CPA ratio?

It's impossible to say what a "good" CPA looks like in isolation, because every industry, business and campaign is different. A good CPA for a car dealership will look rather different to a good CPA for a local cafe.

That said, there is a way to quantify a "good" CPA in relation to another key marketing metric: customer lifetime value (CLV), the total amount a customer will spend with your business over the life of the relationship.

If a car dealership customer buys four cars worth $40K each over their lifetime, their CLV is $120K. If a customer buys a $5 coffee from a cafe every weekday for a year, their CLV is roughly $1,300.

By comparing CPA to CLV, you can weigh the cost of acquiring a customer against the value you are likely to get back from them. Every industry is different, but generally speaking a solid starting-point ratio to aim for is:

CPA can be further contextualised through metrics like conversion rate and return on ad spend (ROAS).

How to reduce cost per acquisition

So how do you actually reduce acquisition cost? At Growth Partners we lean on a number of proven levers as part of our DigitalArchitect® system, concentrating acquisition effort on the most relevant audience, and reducing the number of potential customers who prematurely quit the awareness–consideration–transaction journey.

Awareness phase: SEO

A more thorough, data-led approach to SEO moves your website up the rankings for the keywords that matter, the ones customers actually use when they're looking for what you offer. That means you get in front of more relevant customers who are more likely to convert, for less spend per acquisition.

Consideration phase: quality content

Overlapping with SEO, engaging, value-driven content that resonates with your target audience positions your brand as the obvious choice, critical for moving a prospect through the consideration phase of the buyer journey without losing them to a competitor.

Transaction phase: website user experience (UX)

The last step in acquisition is the transaction phase. One of the biggest reasons prospects fall out of the funnel here is poor website UX: pages that are too slow to load, navigation that's too complex, or a purchase process with too many steps. The result is half-filled forms and abandoned carts.

Enhancing website UX is one of the most powerful CPA investments you can make, because it targets prospects who are already just a few clicks away from being acquired.

Reduce your CPA with DigitalArchitect®

At Growth Partners we have a system for lowering your cost to acquire new customers, while simultaneously analysing and enhancing every aspect of your online presence.

Our proprietary DigitalArchitect® system is your blueprint for digital growth. It builds a deep understanding of your customers, your competitors and your market, revealing who you should target and how, while reducing your CPA along the way. It also uncovers market challenges and opportunities, and how to solve or capitalise on them.

DigitalArchitect® even generates a three-year ROI projection, giving you unmatched clarity on the strength of the business case for your investment.

If you are looking to reduce your CPA and get more return for your marketing budget, we're ready to help.