Why is cost per acquisition such a big deal?

What’s so important about Cost Per Acquisition (CPA)? Essentially, it’s the best way to determine ROI on your online advertising campaigns. It doesn’t matter how many views or clicks a campaign receives, if it’s not generating revenue, it’s not successful. Simple as that.

What should my Cost Per Acquisition be?

Just like many things in life, it depends! Average CPA can vary widely depending on your business model, industry and budget.

If you’re trying to calculate CPA, a good starting place is to take your total revenue over a period of time and divide by the number of customers you had during the same period. Once you know how much your customers are worth, you can get better insight into what return on investment you can expect.

Average Revenue per Customer = Annual Revenue ÷ Annual Number of Customers

When you know how much you make from a customer, then you can know how much you’re willing to spend to get a customer. Armed with this figure, take a good hard look at your current marketing initiatives. It should be pretty obvious which channels are creating profitable customers and which channels are costing you far more than they are worth.

Conversion tracking is vital to gathering CPA data. So, make sure that you’re tracking your conversions and that they are accurately attributed.

Optimising your Pay-per-click (PPC)

The average Click Through Rate (CTR) across all industries is 2.7%. If you’re well below that you need to optimise your Pay-per-click (PPC) campaigns further. Ad impressions, click through rate, cost per click and conversion rate all form a self-supporting network. If you’re missing even one, your PPC will not work. If you want to take charge of your CPA it’s important to have a plan in place.

First step? Up your negative keyword game. Your PPC campaign brings in traffic to your site. Some of it’s good, but some of it is irrelevant and useless. Check your search terms report regularly to make sure you’re not wasting good money for bad clicks.

If you cannot optimise for mobile apply a -100% bid modifier for mobile traffic.

For example, if you’re running a business that only serves a local area, you don’t want people clicking on your ads who are searching for your services outside your remit. The more you build out your negative keyword list, the lower your CPA will be.

If you’re bidding on the keyword ‘winter coats’, using the ad text ‘buy rain coats’ and landing customers on a page about wind breakers, your customers will have a very confusing buying journey. You need to make sure you’re using your keywords in your ad text.

Keep your ads focused on the product that triggered the keyword. This will ensure that you’re dropping people on the right landing page. Fail to do this and you’ll have a low keyword score, higher cost per click and a dramatic rise in your CPA.

High impressions, low Click Through Rate?

If you find that you have lots of impressions but a low CTR, it could be a sign you have low quality ads. If you’re running three ads in an ad group and one has a click through rate that’s significantly lower than the others it needs attention.

If you have keywords that get lots of impressions but few clicks, check to make sure the ad is relevant to the keyword and make sure you’re sending people to the correct page from the advertisement. These two steps will ensure you’re getting the most clicks for your money and every click has the best chance of converting.

Jazz up your ads

Another issue could be that your ads don’t stand out enough against competitors. Normal PPC ads can struggle to get noticed but there are plenty of ways to make them more exciting. Try using keyword insertion. It customises your ads based on a searcher’s query to make your ad more relevant.

Next throw in some ad extensions. These are additional ad features like a phone number, location or links to other useful pages. Finally, set up remarketing. This targets people who have already visited your site with new ads.

Once you have your entire PPC campaign running smoothly, you should always look back at your site. There are a number of on-site issues that can seriously affect your PPC campaign and increase CPA. These include slow loading times, sites that are not mobile friendly and pages that redirect.

We’ve found that many small businesses struggle with a lack of mobile friendliness. If you cannot optimise for mobile, don’t do PPC. But if you insist on using it, apply a -100% bid modifier for mobile traffic.

All of these issues should be solved to make sure you have the lowest possible CPA. If you follow this plan, you will lower your overall CPA and improve your PPC campaigns effectiveness immensely.

Only measure what matters

The level of detail and depths of analysis you can glean from PPC is huge. We’ve gone into some detail about how some of these metrics affect CPA, but it’s important to remember the metrics that matter.

Metrics such as CTR are incredibly valuable to optimisation, but if you’re a business owner this metric is worthless. Your AdWords manager should be worrying about click-through rates and impressions in order to optimise CPA. Cost per acquisition is the only metric you need to worry about, because this is the metric that will affect your bottom line.

The beauty of PPC is that every pound is accountable, yet so many businesses forget to count them in the first place. Instead, they get carried away with infinite dashboards full of metrics that have no impact on their bottom line.

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