Understanding How Cost Per Acquistion Works

There are various methods of digital marketing employed by companies today. Cost Per Acquisition, also known as Cost Per Action, is an approach to digital marketing that focuses on generating specific action from consumers. In principle, Cost Per Acquisition has four simple steps. Consumers visit a website or view an ad. Individuals then click on a link on the website/ad, fill out a form or complete a specific action (call, purchase, etc.), and the company makes money. Seems like a simple process.

As simple as the process seems, understanding how Cost Per Acquisition works is important when determining how to implement CPA tactics. The following paragraphs walk readers through the basics of Cost Per Acquisition for a better understanding of its operation.

What Cost Per Acquisition is REALLY Tracking

Cost Per Acquisition isn’t just tracking the return on investment (ROI) for companies by showing how much money is made as a result of the actions. What Cost Per Acquisition is actually tracking is the cost for a company to get that ROI it is measuring. In this case, Cost Per Acquisition is used to determine how much money a company is spending to get a return on its investment. How much does it cost to generate leads, to get signups for email newsletters, or to convert shoppers to buyers?

There’s a simple formula that shows companies this result. That formula requires taking the total marketing spend and dividing it by the total number of conversions (specific actions). The resulting figure shows a company exactly how much it cost to generate a specific action.

Learn More: Using Cost Per Acquisition Pricing Model With Pay Per Call

What Cost Per Acquisition is Trying to Accomplish

This is perhaps the most important facet of Cost Per Acquisition to understand. Cost Per Acquisition works by generating a specific type of lead. While Cost Per Impression seeks to generate eyeballs viewing ads and Pay Per Click seeks to get consumers to click links, Cost Per Acquisition is action-based. Companies are trying to get customers to take a very specific action, such as picking up the phone to call and set an appointment or fill out a lead form.

Cost Per Acquisition Gauges Long-Term Campaign Success

Cost Per Acquisition can be used as an early measure of the long-term success of a digital marketing campaign. Using this metric, brands can determine whether or not a specific marketing campaign is generating the action a company is looking for and if it can continue to do so at a lower cost going forward. As such, Cost Per Acquisition can show a brand whether or not it needs to further optimize its digital marketing campaigns to ensure the desired action is taken.

Read More: How to Determine Your Target Cost Per Acquisition

Measure Efficient Marketing Spend

Every company, from the one-man startup to a multinational corporation has a budget to live by. Because Cost Per Acquisition models show how much a company is spending to generate each conversion, it can be used to determine whether a company is spending its marketing budget efficiently overall. With each dollar earned, Cost Per Acquisition enables companies to look back and figure out how much it cost to earn that dollar.

Cost Per Acquisition is a very clear indicator of the success of a digital marketing campaign in generating specific actions for a brand. Whether it is generating online sales or getting customers to pick up the phone and set appointments, Cost Per Acquisition measures how much money was spent generating that action and subsequent revenue.

Want More? Everything You Need to Know About Cost Per Acquisition