What Is Cost Per Action (CPA)?
Cost per Action or CPA is a digital pricing model and a system used by marketing to measure the cost of online advertisements concerning a specific action. So, for example, if an ad leads to a click, a sale, or the submission of a form (such as a contact request or signing up for a newsletter), this would qualify as an “action” for which you’ll have to pay a fixed price.
The type of action you want site visitors to perform depends on the advertiser.
CPA is sometimes also translated to "cost per acquisition,” meaning that it’s the price of what advertisers are trying to acquire through an ad or promotion (such as a sale). Even though this technically means the same thing in outcomes, it creates confusion for marketers at times.
But whatever your end goal, the vital thing to find out is how much the aggregate actions of site users take out of your marketing budget.
Why Is Cost Per Action Important?
Cost per action allows advertisers to control advertising costs for specific marketing goals because it works by only charging for the ad when a chosen action is completed. As a result, it also gives the marketer greater control over tracking, maximizing the return on investment across various marketing channels.
But why would you want to track CPA?
Well, it ensures that you’re investing in the most financially beneficial channels, helping you to accurately measure the success of your various marketing endeavors.
Moreover, digital marketers often consider CPA to be the optimal way to buy online advertising because the measured CPA goal is the only outcome that matters to them.
So, in affiliate marketing, this implies that advertisers only pay the affiliates for the leads that convert to the desired action, such as a sale. It lowers the risk for the advertiser because they know ahead of time that they won’t have to pay for bad referrals, and in turn, the affiliates are more likely to send good referrals.
To take advantage of CPA, you should also know how to calculate it. So, let’s take a look into one of the easiest methods of calculating CPA.
How to Calculate Cost Per Action?
Formulas used to calculate cost per action can become pretty complex at times, but the simplest method is:
CPA = Total marketing budget spent (per month/year) divided by the total customers acquired
The greater the number of touchpoints before a lead conversion, the more expensive the acquisition is.
Moreover, if you want to calculate the CPA for all of your marketing channels, you should use figures appropriate to that specific channel. For instance, if you spend $100 on Facebook ads and get 10 new customers. As a result, your CPA would be $10 per new acquisition for Facebook only.
How to Optimize Cost Per Action?
Cost per action turns out to be truly helpful once you sort out how much a specific client's activity is worth to your business. It assists with setting the right financial plan for your digital ads and helps bring down CPA until your marketing efforts pay off.
Here are some steps that can help you optimize cost per action:
1. Streamline Your CPC Campaigns
To increase conversions, you must ensure that your CPC campaigns are targeting the right people and convincingly entice visitors to complete your chosen action by making them want to learn more about your brand.
2. Set Up Multiple Objectives
Even if your final goal is for a client to buy something, setting up additional purposes, such as the time spent on the site or the number of pages visited, will improve insights into potential issues. If your site's bounce rate is high, perhaps it means you need to add more appeal to your landing page!
Overall, cost per action (CPA) can be one of the most innovative ways to advertise your brand and measure your success because it can help to avoid unnecessary costs.