As you’re running an online storefront, it is necessary to measure if you are at the risk of overpaying for your customer or not. Here, the CPA, which stands for Cost Per Acquisition, can help you to figure out how much money you are investing on acquiring a customer.
In the nutshell, it refers to the metric that helps in measuring the aggregate cost incurred on acquiring a customer via an ad campaign over the internet.
To compute it, you can multiply “Total Campaign Cost” by “Conversions”, as
Total Campaign Cost/ conversions=CPA
Why is CPA important to understand for eCommerce?
Digital marketers and also the e-retailers stick to the CPA bidding. It is simply because it gets them to know about what the direct result could be. With this paid marketing tweak, these professionals can easily compare their ad performance across a variety of channels.
Simply put, this evaluation can get you to the understanding of ads as on which network, like Facebook or Google, is adding up to your revenue more and more. This is how you can measure up your financial status to directly evaluating the revenue impact of the SMM or SEM marketing campaigns.
The CPA for eCommerce can be determined in no time if you are in the know of the average order value and the customer lifetime value (LTV). The LTV is the present value of the future net profit from a single customer over his relationship with the company.
You can compute it this way:
LTV = Monthly contribution margin per customer (the revenue from a customer minus variable costs for that customer) x Average lifespan of a customer (the number of months they stay a customer)
This calculation can create the intelligence that:
- There is no need to pay more for a customer than what they’re worth for your business.
- You need to put what amount in the right place.
So, make sure that your LTV is greater that the CPA for each channel. If it does not happen, you’re overpaying the return on investment, which is not a great long-term strategy. The conversion rate is to a certain extent assist you determine. But, the success of any paid campaign depends on the conversion value exceeding over the expenditure.
Here are a few marketing methods that can be compatible with the CPA:
- Social Media
- Content Marketing
Sometimes, you don’t want to put your money in the paid campaign. No worries! You can still make it to the CPA through eCommerce SEO, emails and other platforms.
In the world of digital marketing, there are a lot of hacks and tricks that empower you to have a direct control over, or some partial control over it, and other variables that you cannot manipulate at all.
The knowledge of the CPA can improve your CPC and hence, conversion rate on the site by iterating content so that you can cut on customer churn by coming up with the retention campaigns. This can be the best tool that you have for re-allocating your budget to put on an online campaign.