Cost Per Action (CPA)
Cost per action is an online advertising payment model that charges advertisers only for a specified action taken by a potential customer.
What Is Cost per Action (CPA)?
Cost per action is a digital advertising payment method in which the advertiser pays only for a specific action taken by a potential customer. Nearly every action covered in the CPA model is related to conversion, be it newsletter signup or a link click to go to a sale, as determined by the advertiser.
Cost per Action (CPA) vs. Cost per Click (CPC)
Cost per click calculates the cost of each click on the ads you place, whereas the cost per action helps you determine the specific action you need to measure. Cost per click is designed to bring traffic to a website, while cost per action involves several actions that drive conversions.
Cost per Action (CPA) vs. Cost per Lead (CPL)
Cost per lead, also known as online lead generation, is an advertising metric that calculates the cost of getting qualified sales leads. Cost per lead helps identify potential customers who show purchase intent and are at the end of the buying journey. On the other hand, cost per action measures all types of conversion-related actions throughout the customer journey.
Cost per Action and Cost per Acquisition: The Difference
The terms are often used interchangeably, but the cost per acquisition is a financial metric which measures the cost of getting an individual paying customer.
Cost per Action Formula: How to Calculate CPA
The formulas to calculate cost per action can get a little complex, but here is how you can calculate it in the most basic way:
CPA = total marketing spend/ total number of clients acquired
The more touchpoints your customer passes, the more expensive your acquisition will be. To calculate the CPA for every marketing channel, use figures which are native to that particular channel. For example, if you spent $100 on Facebook ads and got ten new customers, the CPA would be $10 for every customer, but only for the Facebook channel.
How to Track Cost per Action?
As you know that the payment for any CPA campaign depends on the action performed by a customer; tracking everything becomes very important. In ecommerce, the most common tracking methods are:
Google Analytics: This tool helps you track conversions by using tagged links that show the source, medium, and campaign. Based on the action you wish to track, you can also experiment with applying a tracking code on a ‘thanks for shopping’ page. It is the most common tactic to get an accurate count of completed actions like downloads and subscriptions.
Voucher Codes: This applies more to social media and email marketing campaigns. Voucher codes that buyers enter at checkout are easy to apply and cost-effective as a tactic to get the most value out of your promotions. Most online retailers opt for voucher codes to track the success of their campaigns.
Optimizing Cost per Action
Cost per action becomes a very handy metric as you figure out how much a customer’s action defines your business. This metric helps you set the ideal budget and optimize everything at a lower cost until you start getting positive results from your campaigns.
Ways to Optimize CPA
Through CPC campaigns: To increase the number of people converting, you need to ensure that your CPC campaigns target the right people. If the CPC campaign is not communicating the value of an offer to attract potential customers, you need to fine-tune your CPC campaigns until they bring the most relevant visitors.
Focus on CRO: When a new visitor comes to your page, the first impression and user experience are crucial to make them stay. The messages on your landing pages have to align with the ad text, which attracts a visitor’s attention, and all the content on your site and design need to complement the offer. These elements will help lead a visitor to the end of the funnel and make them convert. If you have any confusion, you can employ A/B testing to refine the elements of your landing pages and improve the conversion rate.
Set up multiple goals: Even if the main goal is to make a user purchase something, setting up multiple goals like time spent on the site or the number of pages visited will give you an insight into possible issues in your landing pages. If the users spend time browsing your website, maybe your landing page is not compelling enough, or maybe they need more proof that your landing page works. Whatever the key issue is, you can optimize and fix it.
Why Is Cost per Action Important in Ecommerce?
CPA enables advertisers to control specific costs for marketing objectives because it is designed only to charge you when the potential customer acts. Because the payment relies specifically on completed actions, the advertiser can also better track conversions and improve ROI on different marketing mediums. Tracking the CPA metric ensures that you invest in the most profitable channels and help estimate the success of your marketing efforts.