Why You Need To Measure Cost Per Acquisition

As consumers become increasingly savvy and less receptive to unsolicited marketing, it is becoming harder to extract full value from marketing campaigns.

Add to that, the fact that 90% of global marketers are not trained to calculate Return On Marketing Investment (ROMI), and 80% struggle to properly demonstrate the business effectiveness of their spending, campaigns and activities¹.

So, how do marketers know they get the most bang for their marketing buck?

Knowing what works and what doesn’t allows marketers to prevent campaigns from failing or under-performing. The above however suggests that the majority of marketers are not making the most of the resources available to them.

Cost per Acquisition
Click-Through-Rate, Cost per Click and Cost per Conversion are all metrics that should be measured, but top of any marketer’s list should be Cost per Acquisition (CPA). Why? Because it is a vital guideline for making smarter, more profitable decisions. Let’s see how…

While Cost per Conversion is used to calculate the cost of any conversion (including social media likes and blog subscriptions), CPA focuses solely on quantifying the costs of converting a prospect into a customer, including all marketing spend. And this is what makes this metric so powerful and relevant.

In what is a particularly uncertain climate for marketers, investment decisions on both a wider strategic level and in terms of marketing spend are subject to increased scrutiny. As a result, any metric that enables you to calculate the cost of acquiring further business accurately will allow you to make smarter decisions and provide more leverage for lobbying for increased investment in your marketing team.

So, let’s take a look at how to calculate the Cost per Acquisition (CPA).

The first step to calculating CPA is working out your average revenue per customer. While this is admittedly an easier calculation to perform in a B2C environment, the same concept still applies to B2B companies.

CPA = Marketing Spend / Number of Acquired Customers

With this in mind, the first place to start is to select a timeframe and divide your marketing spend by the number of customers you have acquired during that particular timeframe. This will provide you with an indication of how much it costs for you to acquire one customer.

While there are of course other formulas and factors to consider (such as average order size, purchase frequency and lifetime value), this is especially useful as it provides you with a basic guideline for making smarter, more profitable investment decisions.

Optimise your marketing campaigns
Knowing the CPA of each campaign will help you identify which campaign is truly cost effective and should be leveraged further. It can also give you a clear direction for your marketing strategy and its creative assets. This is especially important in the post-Brexit period when both businesses and consumers are uncertain of what to expect next.

Marketers that take a data-driven marketing approach are more informed of what’s going on once their campaigns go live. They are also more likely to adjust them and avoid pitfall. Download our third and final part of our Post-Brexit Action Plan for 2017 and discover how to analyse data and extract key information that will help to develop cost effective marketing campaigns.

¹The Fournaise Marketing Group