Digital marketing glossary
What is CPA (cost per acquisition)?
Written and reviewed by L.K. Monu Borkala · Updated
Definition
CPA (cost per acquisition) is the average amount you spend on advertising to get one conversion, such as a sale, a lead form, a booking or an app install. It is calculated by dividing your total ad cost by the number of conversions, and it tells you whether a campaign brings in customers at a price you can afford.
How it works
First you decide what counts as a conversion and set up tracking, for example with Google Ads conversion tracking or the Meta Pixel. The platform then divides cost by conversions to show your CPA. Google Ads also offers a Target CPA bid strategy, in which Smart Bidding sets bids automatically to get as many conversions as possible at or below the average cost you choose. To decide what CPA you can afford, start from the value of a customer: how much profit one sale brings, and how many leads it usually takes to win one paying customer.
Formula
CPA = Total ad cost ÷ Number of conversions
Example
Suppose a coaching institute in Kota spends ₹30,000 on Google Ads in a month and gets 120 enquiry forms. Its CPA per lead is ₹250. If 1 in 10 enquiries joins a ₹40,000 course, that is 12 students, so the ad cost per enrolled student is ₹2,500, which the institute can easily afford. Without that calculation, a ₹250 lead might have looked expensive and the campaign might have been paused.
An illustration: the business and the rupee figures are made up to show how the idea works.
Common mistake
Counting the wrong action as a conversion, such as page views or taps on a phone number that never become calls. The CPA then looks low but hides the real cost of a customer. Another mistake is setting a Target CPA far below your current results, which can make Smart Bidding hold back your ads too much.
Where you learn it
- Module 1: Digital Marketing Foundations
- Class: Setting Goals: SMART Goals & KPIs · read it free
- Module 7: Google Ads
- Class: Quality Score & Bidding Strategies
Related terms
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