How To Calculate Cost Per Acquisition (2024)

What is cost per acquisition?

Cost per acquisition (CPA) is a metric that measures the cost of acquiring a new customer for a business. It is calculated by dividing the total costs associated with acquiring new customers by the number of new customers acquired during a specific period of time.

Why is cost per acquisition important?

Efficiency

Understanding the cost per acquisition helps businesses evaluate the efficiency of their marketing and advertising efforts. It provides insights into the effectiveness of their customer acquisition strategies and allows them to optimize their marketing budget.

Clarity

By knowing the cost per acquisition, businesses can have a clear understanding of how much it costs to acquire a new customer, which is crucial for making informed decisions about their marketing and sales strategies.

Reassurance

Knowing the cost per acquisition can reassure businesses that their customer acquisition efforts are within their budget and are generating a positive return on investment.

Objectivity

Cost per acquisition provides an objective benchmark for evaluating the performance of different marketing channels and campaigns, allowing businesses to allocate resources more effectively.

What factors influence cost per acquisition?

Marketing channel

The choice of marketing channel can significantly impact the cost per acquisition. Different channels have varying costs and effectiveness in reaching and converting potential customers.

Budget

The budget allocated to customer acquisition efforts directly influences the cost per acquisition. A higher budget may result in a lower CPA if the resources are utilized efficiently.

Definition of acquisition

The definition of what constitutes an acquisition for a business can affect the cost per acquisition calculation. For example, different businesses may have different criteria for what qualifies as a new customer acquisition.

How to calculate cost per acquisition

The formula for calculating cost per acquisition is:

Cost per Acquisition = Total Costs / Number of Acquisitions

For example, if a business spent $10,000 on marketing and acquired 100 new customers, the cost per acquisition would be $100.

How to lower your cost per acquisition

1. Personalization

Personalizing marketing messages and offers can improve conversion rates and lower the cost per acquisition by targeting the right audience with relevant content.

2. Landing page optimization

Optimizing landing pages for better user experience and conversion can reduce bounce rates and improve the effectiveness of customer acquisition campaigns.

3. More efficient check-out processes

Simplifying and streamlining the check-out process can eliminate friction and reduce the likelihood of potential customers abandoning their purchase, lowering the cost per acquisition.

4. Identifying purchase intention

Utilizing data and analytics to identify and target potential customers who are more likely to make a purchase can improve conversion rates and lower the cost per acquisition.

5. Retargeting

Implementing retargeting campaigns to re-engage potential customers who have shown interest but have not completed a purchase can improve conversion rates and reduce the cost per acquisition.

Cost per acquisition FAQ

What are the two types of acquisition costs?

The two types of acquisition costs are tangible costs, such as advertising spend and marketing expenses, and intangible costs, such as the time and effort spent on customer acquisition activities.

Are acquisition costs capitalized or expensed?

Acquisition costs are typically expensed as they are incurred, rather than being capitalized as an asset on the balance sheet. This is because they are directly related to generating revenue in the current period.

Can you lower your CPA without sacrificing quality?

Yes, it is possible to lower the cost per acquisition without sacrificing the quality of customer acquisitions by optimizing marketing strategies, targeting the right audience, and improving the efficiency of conversion processes.