What is cost per acquisition?
Cost per acquisition is a metric that measures the cost of acquiring each new customer via Google Ads. As the name itself describes – it shows how much, on average, each acquisition costs you.
Remember, CPA takes into account only new paying customers.
How to calculate cost per acquisition?
To calculate cost per acquisition, divide the ‘total cost of the ad’ by the ‘total number of acquisitions’ or the number of new paying customers acquired via Google Ads.
Formula for calculating cost per conversion
Real-life example of cost per acquisition
Understand CPA with this example:
You own a software business and spent $1,000 on Google Ads. At the end of the ad campaign, you acquired 500 new paying customers through Google advertising.
Then, your cost per acquisition (CPA) will be: 1000/500 = $2
It means you had to spend 2 dollars to win each paying customer (acquisition).
What’s an average cost per acquisition? (benchmark)
A good cost-per-acquisition (CPA) ratio is 3:1, so ideally it should be about 3 times lower than the customer lifetime value (CLV).
If your ratio is 1:1 or close to it, your acquisition cost is more than it should be.
The average cost per conversion across Google Ads is $56.11 on the search network and $90.80 on the display network.
The electronics industry, business-to-business, real estate, and technology industries have the highest average CPA of more than $100.
You can determine if your CPA is below, above, or just average by comparing it with your LTV (customer lifetime value).
Ways to optimize your cost per acquisition
You can lower your CPA either by reducing the cost of the campaign by attracting more high-quality clicks and/or increasing the number of conversions.
Here are some ways to do so:
- Improve your quality score: Quality score is a Google Ads rating of the overall user experience delivered by your ads and landing pages. A good quality score will lead to lower ad spending. Read this guide on improving your quality score by Google
- Optimize your landing page: Instead of directing the traffic to a generic landing page, send the users to a dedicated landing page that aligns with your Google ad. Enhancing your landing page will lead to high chances of conversions hence increasing your number of conversions and ultimately lower CPA. Read: How to Design Landing Pages That Convert
- Keep adjusting your campaign bids: You should analyze whether it makes sense to drop your ad group and keyword bids as it will capture more clicks and conversions for that same budget. Read this guide on: Adjusting Bids Like a Pro