Learning how to calculate cpa is a great asset for any agency in the advertising world, and can be the difference between a successfully run business, and one that quickly goes under.
But what exactly is cpa, and why is it so important?
What Is CPA?
Cpa, or ‘cost per acquisition’, is an advertising term that refers to paying for sales accrued through advertisements.
When an advertising agency develops a partnership with a company, who allows them to advertise through their website, the agency is then required to pay the web host a percentage whenever a new sale is achieved as a result of someone seeing the ad.
Also known generally as ‘cost per action’, an action in this sense can also include new customers signing up for newsletters, contact requests, online registration on the advertised website, as well as a sale, a click, or a form submit.
In this sense, any form of positive engagement between a new customer and the advertised brand, product or service, counts as cpa, and involves the advertiser paying the web host for the said engagement – usually based on pre agreed terms.
How Is CPA Calculated?
When it comes to calculating cpa, there is a specific equation that companies can use to work it out.
To work out the cost per acquisition/action, companies take the cost of the campaign, and divide it by the number of actions they receive.
For example, if the amount spent on the campaign was $200, and the number of actions they receive is 10, then the cpa would be $20.
This can be represented by the equation below:
CPA = Cost / actions
Generating Positive Engagement
There are two primary methods that companies use to attain new customer bases, and with them, new actions.
Paid Partnerships
If an advertising agency or company has made a deal with a website owner (such as a blogger with a large following), it is usually the case that they will place paid ads on the bloggers website, or get them to actively advertise through their site.
If this is the case, and the advertising agency or company then receives more business as a result, then they are obliged to compensate the blogger for their efforts, and for the new audience that they have delivered.
If this is not properly done, legal action might be on the horizon, or indeed, lucrative partnerships could dissolve.
Paid Ads
Most companies will have their own ad campaigns that they themselves operate (without the help of partnerships and sponsored deals).
Taking note of successes and failures within these campaigns can make all the difference when it comes to removing dead wood, and capitalizing on lucrative campaigns that are proving fruitful.
How To Track CPA
Due to the somewhat amorphous nature of this positive online engagement, companies have to work particularly hard to keep track, and take note of the original source of this engagement.
Cookie Tracking
Cookies are a widely recognised term in modern online practices, and refer specifically to small clumps of data which are attached to a user’s computer, and used to identify them in future interactions.
When users visit a webpage, either through an ad or under their own volition, they are warned of cookies, and that the company or webpage in question collects cookies for their own personal use.
This is one method that companies can track where positive engagement comes from.
When a media owner drives a click, a cookie is then dropped on the visitor’s computer, which then is linked back to the media owner once this ‘action’ or engagement is achieved.
Call Tracking
In some cases, unique phone numbers are used to represent a certain deal or offer.
So, case and point, a specific media or website owner would have a specific telephone number attributed to them, and relating to the specific deal they are advertising through their website.
When a new customer follows the link, or calls that specific number, then this ‘action’ or positive engagement, will be associated with the media or website owner, who will then receive compensation from the ad placer.
Promotional Codes
Promo codes are widely used in the online advertising world, and are a great way for companies to track the actions back to the specific driver of the sale.
A website host will usually have a promo code that their followers can use to get discounts with their advertised products.
Once a new customer follows the link, makes a purchase, and applies the code at checkout, then the placer of the ad (or company owner) can attribute this sale to the website host, and compensate them for the actions they accrue.
The Benefits Of Tracking CPA
Of course, there are several benefits to keeping proper track of cpa.
Finance
Ensuring website hosts are properly paid what they are owed is important when it comes to maintaining profitable business relationships. This can also avoid nastiness and lawsuits down the line.
Also, with regards to the ad placer’s finances, it is important for them to see which campaigns are successful and making money, and which ones are not doing so well.
Growth
By recognising which methods are most effective, companies can follow proper trajectories that will lead them to success.
When they aren’t pursuing flawed advertising campaigns, they can focus on the ones that create true positive engagement, and bring in new actions that are profitable for everyone involved.
Final Thoughts
And there we have it, everything you need to know about cpa, the way it is used, and the equations used to properly calculate it.
When it comes to online advertising, actions are the bottom line, and by carefully monitoring where they come from, and calculating their costs against their new customers, companies can, for the first time, have 100% clarity when it comes to their successes and their shortcomings in modern advertising.
These days, everything is online. You can’t get your business anywhere without a great online presence. With search engines forever changing, it’s difficult to stay on top of it all! That’s where I’ll come in.
Hello, my name is Jack O’Neil and I have been in the marketing industry for almost 10 years. I focus on online marketing, SEO, advertising, and more.
