Getting started with CPA can be confusing. There are a lot of terms to know and remember that are commonly referred to in the industry, and a plethora of metrics to track. But don’t fret! We’ve compiled some of the most commonly referred to terms you’ll need to help you get started in CPA.
Read More: Understanding How Cost per Acquisition Works
Let’s start with the basics – the term that centers it all – CPA. CPA stands for cost per action, or cost per acquisition. It can be calculated using: the total cost of a campaign / number of conversions.
So what counts as an action or acquisition? That’s up to you. It depends on the type of campaign you are running, and can be defined as clicks, likes, sign-ups — the options are endless. Most digital marketers prefer the cost per acquisition pricing model because they can set their definition of an acquisition before they start advertising and only have to pay when their desired acquisition or action happens.
Cost per click (CPC) is a paid advertising term where an advertiser pays a cost to a publisher for every click on an ad. CPC is used to determine costs of showing users ads on search engines, Google Ads, social media platforms and other publishing platforms. CPC is a significant factor in choosing bidding strategies and conversion bidding types. The goal is to maximize clicks relative to budget size and target keywords.
Similar to CPA, in cost per engagement (CPE) campaigns, a payout is triggered every time a user engages with an ad (or content). An engagement is defined as any type of user interaction. This can include actions that are not typically encaptured in other types of campaigns – such as pausing and muting videos.
Picture this: a mobile app owner or developer decides they want to promote their app with paid advertisements. In order to do this, they work with advertising networks or publishers directly to increase the exposure of the app. The business is then charged a fixed rate for promotion or bid rate whenever the app is installed.
Cost per install, better known as CPI, is one of the most important metrics for mobile applications. To find the CPI, all you need to do is divide the total spending on ads by the number of installs.
The cost per lead (CPL) metric measures how cost-effective your marketing campaigns are when it comes to generating new leads for your sales team. This metric provides a tangible dollar value for your marketing team to use in determining how much money is appropriate to spend on campaigns to acquire new leads.
Cost per impression (CPM) is the cost that one will pay when their ad is shown per one thousand impressions. On a publishing platform such as Facebook or Google Ads, a digital advertiser will bid on the CPM before the actual ad is shown. The bidding process will help to determine if the ad is shown before other ads or it’s overall rank in placement.
The cost per sale (CPS) is measured using a budget and a date range. Each sale is tracked during the period and is used at the end date to calculate the average advertising cost for each sale. While this is similar to CPL, it is more likely to be used for one-time purchases or single products.
CTR is the number of clicks that your ad receives divided by the number of times your ad is shown: clicks / impressions = CTR. The CTR can be used to gauge which ads and keywords are successful for your campaign and which need to be improved. The more your keywords and ads relate to each other and to your business, the more likely a user is to click on your ad after searching on your keyword phrase.
CR (conversion rate)
Your conversion rate is the percentage of visitors to your website that complete a desired goal (a conversion) out of the total number of visitors. This could be a sale, form submit, demo sign-up, or any other desired action. A high conversion rate is indicative of a successful marketing campaign and user experience. It means people want what you’re offering, and they’re easily able to get it!
EPC or “earnings per click” is a common payment model for affiliate schemes. This is outlined as the rate of commission or payment that you earn for clicks on your ad or the activity you achieve on your affiliate links. Knowing how much you earn for each click is fundamental to calculating your affiliate marketing earnings and making your affiliate marketing campaigns work for you. After all, you want to ensure that in the long run your earnings per click are greater than your costs.
Now this is a tricky one! PPC is commonly referred to around here as Pay Per Call. However, in digital marketing, PPC is also used to refer to pay per click, so it’s always important to dig a little deeper to determine what type of campaign you are really being asked to run.
In a pay per click campaign, publishers will receive a specified payout every time an ad is clicked. As we mentioned before, this term may also be known as cost per click, or CPC.
In a pay per call campaign, publishers will receive a payout every time a user calls a campaign number and is qualified through specifications of the business who receives the call. This type of campaign may require some more steps to set up, but receives much higher payouts than other campaign types.
Read More: How to Shrink Your Cost Per Acquisition
For businesses, this is the most important term of them all. The lifetime value (LTV) is a prediction of the net profit attributed to the entire future relationship with a customer. LTV = Contribution margin per customer action x frequency of actions x average lifespan of a customer (the duration of time that they stay a customer).
In order to be sustainable, you’ll want to make sure that LTV > CPA for each channel. If this relationship does not hold, you’re paying more to get a customer than what they are worth to your business.
Impressions are the number of times your ad shows up on a viewer’s screen. It’s important to monitor your impressions vs your engagements. If your ad is showing up on a lot of pages, but has little to no engagement, it’s a sign you might need to improve your content to entice people to click.
A tracking link is used to measure the effectiveness of your marketing campaigns, channels and activities. You should always use a tracking link when you are directing traffic to your website from an outside channel, like email, social media, PPC campaigns, banner ads, and sponsored posts etc. This way you can monitor your campaign success, track conversions, and see where users may be falling off from your campaign.
Postbacks, in general, are URLs that are used to pass information about conversion for tracking purposes. This term is often mentioned when it comes to running advertising campaigns through affiliate networks. They are sometimes also referred to as callbacks, server-to-server (S2S) or cookie-less conversion tracking.
Postbacks allow servers to communicate with each other directly, without the use of client involvement or cookies on a visitor’s computer. Once activated by a source platform (an affiliate network or tracker), these links send information to the target platform instantaneously.
Return on investment is considered one of the most important measurement metrics in determining the success of a company’s marketing campaign. Using this return, businesses can get an idea of how effective they are at structuring paid advertising campaigns, and find the best ways to get the most bang for their buck.
Paying a small amount of money for advertisements or keywords, and having them generate a lot of conversions or website traffic, means that they have a high return on investment. On the contrary, if you are paying high prices and seeing little for your efforts, the ROI is low. Since high costs can also mean high returns, ROI can help determine what methods make the most financial sense. Return on investment can be an important measurement of success in order to determine if you should continue to move forward with a paid advertising campaign, or switch to alternative methods.
As we’ve mentioned before, server-to-server refers to the bidding process on a lead. This method allows for a unified auction, but instead of the bidding happening in the publisher’s browser as it does in header bidding, it happens on the server of whoever the partner is (most likely an affiliate network).
The main benefit is that in shifting the auction process out of the publisher’s side is that they can avoid the risk of page-load latencies and can eliminate the need to cap how many demand sources they plug in. The publisher will also have fewer partners to deal with, because they’ll all just integrate into the server.
Conversion or tracking pixels are one of two methods of reporting conversions, the other being postbacks or S2S. A pixel is placed on a page or website and tracks web traffic, site conversions, user behavior, and more on a site’s server level. This enables digital marketers to gain a deep understanding of how users interact and respond to their ads, their email campaigns, and their site as a whole.
Hopefully this guide was helpful in outlining the most common terms used in CPA. While it may seem like a lot to know, it all comes down to one thing — tracking. When it comes to monitoring your ads and promotions, you want to make sure you are analyzing every step of the process. By tracking key campaign metrics and conversions, you can optimize your campaigns for success.