Questions? Call Us:

(888) 231-9764


how to calculate cost per acquisition

How To Calculate Cost per Acquisition

Are you trying to improve your digital marketing strategy? You could benefit from learning how to calculate cost per acquisition.

As a trusted PPC management expert in NJ, Peppermonkey Media can help you optimize your marketing strategies. We can improve your return on investment. Keep reading to discover how.

What Is Cost per Acquisition?

Cost per acquisition is the average amount you spend on advertising to acquire a new customer using a specific action (like clicking on a link to schedule an appointment). It depends on how much you spend for each advertisement, the click-through rate, and your number of conversions. In other words, it’s a key performance index that helps you determine your return on investment in advertising.

Why Is Cost per Acquisition Important?

Your cost for acquiring customers is an important set of data for devising your strategy for digital marketing. It provides a clear insight into your ad campaign success, and by optimizing your paid advertising, you’re gaining more customers for less money. 

With this data, you’ll have better marketing budget management and can streamline your marketing funnel by targeting the customers with the lowest acquisition costs.

Two other important metrics are closely related to CPA:

  • The customer acquisition cost is the total amount of money your business pays to gain new customers. It includes your marketing campaign costs, the value of free trials or deals, and more.
  • The customer lifetime value metric estimates the projected revenue from acquiring a new customer. For example, if you have an average order value of $10 a month for 10 years, a customer’s average CLV equals $1,200 ($10 x 12 months x 10 years).

The goal of your marketing campaigns is to have a lower CPA than CLV, indicating a return on your investment.

Calculating Cost per Acquisition

Because it’s such an important metric, you’re probably wondering how to calculate cost per acquisition. It’s an easy formula: divide your total marketing campaign costs by the total number of conversions.

For example, imagine you spend $500 on a marketing campaign during which 10 customers click on your call to action and purchase your product. Your CPA equals $50 ($500 / 10 = 50).

Lowering Your Cost per Acquisition

Ideally, you should aim for a 3:1 ratio between your CPA and CLV. Therefore, if you have an average customer lifetime value of $900, you should lower your cost per acquisition to $300. 

What happens if you have a ratio above 3:1? You might feel thrilled that you’re profiting so much from your advertising. However, it actually means you’re not spending enough on your marketing.

With such a high ratio, you’re missing out on converting customers that could increase your customer base and long-term profits. If you have an unusually high CPA and CLV ratio, expand your marketing campaign.

If your costs aren’t yet optimized, you can use the following techniques.

Diversify Your Strategy

Your marketing strategy should include social media, SEO, email campaigns, and more. By diversifying your approach, you’ll not only reach more customers, but you’ll also have more data about what methods best convince your paying customers.

Optimize Ad Copy

Ad copy directly affects your CPA because good advertisements are more likely to convince people to click and buy. Peppermonkey Media can help you improve your copy, but in general, a good piece of marketing:

  • Uses captivating and engaging content
  • Speaks to the customer’s needs and values
  • Establishes you as a trustworthy authority
  • Uses multiple forms of media, including audio, video, images, and text

Retain Customers

Acquiring new customers is almost always more expensive than retaining them. To retain your customers, improve the following techniques:

  • Practice consistent and transparent communication.
  • Enhance your customer support to respond to customers’ concerns more quickly.
  • Focus on consistent branding across all platforms.
  • Re-engage with inactive customers.
  • Focus on maintaining and improving the quality of your service or product.

Improve Landing Pages

Your website’s landing page is the first thing most people see when they search for more information about your company. If your customers find your landing page unsightly or confusing, they’ll leave before finding the answers they seek.

However, optimizing your landing page is about more than just reducing confusion and making the page look appealing. It’s about creating an enjoyable or useful experience for the customer. The following practices can enhance your landing page:

  • Use relevant and intriguing headings and subheadings
  • Only include internal links and remove external links to keep customers from leaving your website
  • Make the page easily navigable with clear links and calls to action
  • Highlight your unique sales propositions (why the customer should choose you)

Harness CRM Technology

If you’re not using customer relationship management software, you’re missing out on a significant method of lowering your CPA costs. With CRM software, you can centralize all your data about customer demographics, buying habits, and other data, which allows you to make more informed decisions.

CRM software helps you target the customers most likely to respond to your ads. With a higher rate of conversion, you can spend less money and see higher success, improving your ratio between cost per acquisition and customer lifetime value.

Utilize Market Research

You can’t engage with your audience or create relevant content if you don’t know what they value or need. While your customer relationship management software can help track data, you should regularly conduct market research to update your knowledge of your consumer base.

People are always growing and changing, and that includes their preferences and buying habits. While CRMs provide reactive information about changing habits, market research can anticipate these trends. This allows you to stay ahead of the curve and gives you the edge over your competitors.

Optimize Your Digital Marketing Costs With Peppermonkey Media

Now that you know how to calculate cost per acquisition, you can determine where you can better optimize your marketing costs. Peppermonkey Media can improve your PPC bidding strategies and help lower your cost per acquisition. We’re a trusted digital marketer with a proven history of generating leads.

If you’re ready to schedule a digital marketing consultation, contact us online or call (888) 231-9764 today!

You Might Also Like This

Speak To An Expert!