Marketing teams need to consistently gather a variety of metrics and track key performance indicators (KPIs) to ensure their campaigns and strategies deliver the best results. One of the most important metrics in their toolset is cost per acquisition (CPA).
Cost per acquisition measures how efficiently a marketing program drives desired actions, such as leads, sign-ups, or sales. The more efficient your program is at generating leads, the lower your overall marketing costs will be. But lead quantity isn’t enough — to achieve a higher return on investment (ROI), you need to ensure the leads you drive are high quality and contribute to revenue.
This post explores the value of CPA as a marketing metric and suggests ways to use data-driven marketing strategies to optimize campaigns and lower customer acquisition costs.
Cost per acquisition, or CPA, measures how much marketing spends to acquire a customer — or, more specifically, achieve a conversion, which may not necessarily mean a paying customer — through a specific campaign or action. A campaign might involve a series of Google Ads, while an action could involve getting a target to sign up for a free trial or make a purchase.
CPA can include media costs, labor, technology costs, and more. It’s calculated as the total marketing spend, expressed in dollars, divided by the number of new customer leads acquired. Later in this post, we’ll explore how to calculate CPA in greater depth.
You can apply CPA to any digital and offline channels and campaigns that you track, from digital ads to customers who converted during phone calls.
CPA is different from two commonly used marketing metrics: customer acquisition cost (CAC) and return on ad spend (ROAS).
While CPA looks at the cost of acquiring a single conversion, CAC provides a broader view of overall customer acquisition expenses. ROAS evaluates the return on specific ad investments.
Here are four good reasons CPA should matter to any marketer.
CPA helps marketers understand how effective their marketing strategies are in generating new customers. Generally, if a business has a relatively high CPA, it indicates that marketing must become more efficient. Increasing efficiency may require a reassessment of ad creative and audience targeting. It could also indicate a need to adjust campaign messaging so that it resonates more convincingly with the target audience.
Marketers also rely on CPA to help them drive efficiency in another way — by guiding them in accurately distributing their marketing budget across the highest-performing channels.
For example, if your CPA calculations reveal that paid search has a lower CPA than social ads, that finding suggests you should consider allocating more of your overall budget to paid search so you can make better use of your marketing budget.
CPA calculations often use customer lifetime value as a point of comparison. CLV measures how much a customer spends with you over the life of the relationship. It’s widely accepted that CPA should not exceed 30% of customer lifetime value or a ratio of 1:3.
Businesses with higher CLV measurements can generally afford to run marketing with a higher CPA. A telecom provider that offers monthly internet and cable services would be an example. Its customers tend to keep their subscriptions for years, either renewing their contracts or upgrading their plans over time.
This results in a much higher customer lifetime value for the telecom provider compared with a business that relies on one-time purchases, such as a retailer selling individual electronic devices. While a customer might only buy a router or modem once, a telecom provider benefits from consistent, recurring revenue over the long term.
CPA helps businesses determine which marketing channels — search ads, social media, phone calls, or email — drive the best ROI, another key metric for marketing performance.
For instance, say that a midsize landscaping business analyzes all its marketing channels and discovers that running a series of Google Ads has a CPA of about $45. Its direct mail campaign has a CPA of $105. Since the Google Ads campaign is significantly more cost-effective in generating leads, the business might consider abandoning direct mail and moving all its campaigns online.
CPA, or cost per customer acquisition, is how much you must spend on marketing to get a customer to take a specific action, such as signing up for a free demo or making a purchase. But how do you calculate cost per acquisition? We’ll start with the formula.
CPA = Total Marketing Spend / Total New Customers Acquired
Using this formula, let’s suppose you want to measure the CPA of a free demo campaign your business is promoting on Facebook. You simply divide the cost of the campaign by the number of people who signed up for the demo over a specific period.
For example, if you spend $1,000 on a six-week Facebook ad campaign and 100 customers sign up for the demo during that time, your CPA will be $10.00.
The formula is simple, but the result is only as good as the data you use to calculate the results. Here are three common challenges marketers face when trying to determine CPA accurately.
Marketing journeys are rarely straightforward. Customers may interact with your campaign over multiple touchpoints or campaigns, making it difficult to track CPA correctly. Also, if you are using a last-touch attribution model — assigning 100% of the credit for a conversion to the last interaction a customer had with your brand before converting — you may discount the actual conversion path the customer took and misattribute an action or the actual purchase.
Marketers who don’t use some form of offline channel tracking could easily miss many of the conversions their campaigns drive. Although offline conversions are not as easy to track as digital conversions, there are solutions.
Tools like Google Store Visits and data onboarding via LiveRamp are making it easier for businesses to track in-store conversions, also known as footfall attribution.
And with a call tracking solution like Invoca, marketers can easily provide attribution credit for phone call conversions. Invoca uses AI to track, record, digitize, and analyze 100% of customer phone calls quickly and efficiently.
We noted earlier that CPA has a close connection to another marketing metric, customer lifetime value. Marketers should avoid becoming overly focused on calculating CPA, otherwise they might overlook the importance of comparing it with CLV. This oversight can lead to businesses operating with a higher CPA than is sustainable.
To maintain profitability, be sure to consistently compare CPA with CLV. Also, aim to keep CPA below 30% of the customer’s projected lifetime spending with your business.
If your CPA is higher than 30% of the customer lifetime value, how do you improve it and bring it into line? Here are six strategies that can help your business lower CPA:
A top way to improve CPA is to ensure your ads have the right impact on the right audience. To make your ad campaigns effective, you must truly know your customers. That requires using all the data available to you to understand their needs, preferences, expectations, and behaviors.
If you’re only collecting and analyzing data from your customers’ online activity, you don’t have the full picture. Consumers in industries like insurance, financial services, healthcare, telecom, automotive, home services, and travel are all more likely to make a high-value purchase over the phone rather than online. If you don’t use AI-driven tools to effectively gather insights from phone conversations at scale, you’re missing a lot of crucial information.
Let’s say you head up a marketing department at a bank. With Invoca’s AI, you can slice and dice data within your call center transcripts to identify callers who expressed a genuine interest in a specific type of savings account but failed to open one. Using this data, your marketing team can then retarget callers (and leads like them) with an incentive, such as a $100 one-time deposit, if they open an account within 30 days.
Making your online assets more efficient and the content more compelling is another effective strategy to help increase conversions and leads and lower CPA.
Have you A/B-tested your landing pages for every campaign and action to make sure your messaging that resonates with your target audiences? And are you testing only web views? You should test your mobile landing pages as well.
Rigorous A/B testing of sign-up pages can increase sign-ups and conversion rates from existing web traffic without requiring you to chase new leads. Sometimes, you’ll find that even the smallest changes in design or copy can delight your customers and deliver bottom-line results.
Consider Indian fintech PayU, an online payment provider, which found it had too many users dropping off its checkout page. The reason? They were being asked to provide an email and a phone number before checkout. (Filling out one of these fields was essential for PayU to comply with local laws requiring a customer receipt.) PayU tested two versions of the page: A, requiring email and a phone number, and B, a page requiring only a phone number. Version B resulted in a 6% increase in checkout success, which ultimately translated into higher ROI and lower CPA.
What business doesn’t want to lower its marketing costs? Reviewing data across all channels and campaigns can help you audit which campaigns deliver the best results and which should be jettisoned to optimize your marketing spend.
Start by reviewing conversions. Data from online conversions is easily collected, but as we outlined above, offline conversions can be more challenging. With automation through AI tools like Invoca, you can capture and analyze data from 100% of calls and gain a full-funnel view of which campaigns and assets are driving conversions.
Once you have a complete picture of conversions, you can confidently close channels and cut campaigns that don’t deliver, and lower your marketing costs.
Attracting a lead is important, but engaging that lead so they convert is just as critical. Relevance and personalization are the keys to improving customer engagement. The customer must need your product or service and believe that you need them to purchase it.
Personalization can be achieved across channels using tools like Invoca PreSense. PreSense connects online and offline journeys by gathering details of the customer’s digital journey and channeling that data to customer service agents handling inbound phone calls from the customer via a pre-call pop-up.
Equipped with vital information such as the name of the caller, their location, and which product pages they’ve viewed recently, the agent can greet the caller by name and personalize the conversation.
Reducing lead leakage can help you lower CPA over time. So, you must avoid losing leads, including those coming in over the phone. AI-powered call tracking can help by providing an accurate record of 100% of phone calls to your call center and attributing them to the correct marketing campaigns.
The Kinetic division of communications and software provider Windstream successfully reduced its CPA by 17% by capturing and retaining higher-quality leads — 60% of which came through phone calls. The business achieved this by refining its paid search campaigns based on insights from accurate call attribution.
Lastly, never look at CPA in a vacuum. Constantly compare CPA with customer lifetime value (CLV), aim for a high CLV and low CPA, and strive to stay below the 30% threshold we mentoined earlier. The more distance your team can put between the two metrics, the more effective your marketing program will be.
Aiming for a high CLV also gives you more flexibility to devote marketing resources to acquiring leads. For example, a telecom company with a high CLV might allow its marketing team a higher CPA and more budget because management knows customers typically subscribe for multiple years. Meanwhile, a lower CLV business like an auto dealership, where customers may take years to make another purchase, if at all, must keep CPA in check.
Tracking cost per acquisition is essential for efficiently managing your marketing budget. You should explore every tool and strategy available to help achieve your CPA goals.
Invoca lets you track and lower CPA by arming your marketing team with the data needed to optimize your ad creative, enhance customer engagement, and deliver pinpoint attribution accuracy so you know which campaigns, ads, or channels are delivering high-quality leads.
The AI capabilities Invoca provides can help you extract critical data insights from customer phone calls. By combining this data with online data, you can more confidently attribute leads and conversions to specific campaigns. This means you can optimize your efforts quickly and easily, channeling more resources into the best-performing campaigns and assets.
You can also use Invoca to enhance customer engagement through personalization over the phone using PreSense. Ultimately, Invoca and its AI capabilities can help you enhance your overall marketing performance while driving down CPA.
See how Invoca works in this short video:
To learn more about CPA and how you can optimize marketing campaigns to lower customer acquisition costs, check out these resources from Invoca:
Why not book a free demo with our team to learn how Invoca can help you lower CPA and drive revenue growth by making more informed marketing decisions?
Cost per acquisition (CPA) can vary depending on a range of factors, including the industry your business is in and the type of marketing campaign you’re measuring. Generally, CPA is measured against customer lifetime value (CLV) to determine if CPA is high, low, or average.
An average CPA should be lower than CLV to signify a successful marketing effort. According to e-commerce consultant BloomReach, a good average CPA is one-third of CLV. So, if CLV is $1,000, the cost to acquire a lead should be less than $333.
Customer acquisition cost (CAC) and cost per acquisition (CPA) are similar metrics that provide slightly different insights into marketing effectiveness:
