Cost per acquisition (CPA) marketing is one of the most sure-fire ways for your brand to expand its customer base, since you only pay for completed conversions. The cost per acquisition is how much ad spend is required for a customer to make a purchase — and cost per acquisition marketing ties your ad spending directly to your revenue. But what exactly is CPA marketing, and how does it work? Let’s get into it.
Cost per action or cost per acquisition?
Confusingly, CPA can mean two things, which are related but distinct. There’s cost per acquisition (CPA) and cost per action (CPA). What’s the difference? An acquisition is a type of action, but not the reverse. All squares are rectangles, but not all rectangles are squares, and all acquisitions are actions and not all actions are acquisitions. An acquisition is specifically when a user makes a purchase (thus becoming a customer), but an action could be something else, like signing up for a newsletter, or watching a video.
Cost per acquisition is sometimes used interchangeably with “customer acquisition cost” but the two actually differ slightly. CPA is a pricing model — what a platform charges you for your campaign, and CAC is campaign measurement, related to return on ad spend (ROAS). The CPA will often vary throughout a campaign as you adjust what you’re bidding per conversion to see the volume that you need. The CAC would then cover the entire length of the campaign (or whatever period you’re reporting on), and even those numbers out to reflect a median spend.
At Tapjoy, we use the term Cost Per Action to denote our CPA product, which allows marketers to pay for completed actions or acquisitions that occur on our Offerwall.
What is CPA marketing?
CPA marketing is marketing where the cost is set based on the action taking place. The advertiser only pays when the user completes the action, so it’s a guaranteed success. That may be when the purchase is complete, when they’ve signed up for a subscription, or taken a survey.
The cost of CPA marketing may seem to be steep when compared to other forms of marketing like cost per click (CPC) or cost per impression (CPM), but it offers a guaranteed interaction, with no cost if the customer doesn’t complete the action. That means that every dollar of ad spend is tied to direct revenue, rather than on users who may click through on an ad then bounce away immediately.
How do you calculate CPA?
Regardless if you’re calculating the CPA or CAC, the basic formula remains the same (caveated for how the CPA can be adjusted as needed as part of the bidding phase for an ad). How much you spent, divided by the number of actions/acquisitions. If the campaign budget was $1,000 and you netted 100 sales, then the CPA/CAC was $10. There are also other, more complex ways to calculate this number that take into account wages and costs, but the simpler method is often sufficient.
What is an effective advertising CPA marketing campaign?
The largest hurdle for CPA marketing is, simply, convincing the user to make a purchase. We’ve found that by offering an additional incentive, users are more likely to complete the required action — especially in the form of in-app rewards. Tapjoy’s CPA ads tie in with Tapjoy’s Offerwall, a native layer within an app (usually a game) where users will be rewarded with in-app resources for completing the required action. These actions can vary in size (with appropriate rewards) for everything from following a social media account up to making a purchase.
The results from this technique speak for themselves — direct to consumer brands like Looma and Manscaped saw significant KPI improvements, the former a 30% increase in first-time purchases and 25% increase in revenue month over month, and the latter gained more than 120,000 new customers.
In-game CPA marketing also allows for quick and easy A/B testing, allowing companies to iterate on ideas and designs quickly to find what’s most effective for their current audience. Manscaped were able to discover that product shots increased conversion over lifestyle photos, as did free shipping and gifts, as well as tailoring the ad’s language toward a gaming audience.
What is the customer acquisition cost by industry?
It can be difficult to pin down what exactly the normal acquisition costs are for various industries. Some frequently cited numbers range from $7 for travel to $395 for technology (software). But what we know from our own campaigns is that wine subscription service Winc achieved an average cost per subscription of $75. Keep in mind that if a purchase if your target action, the cost of acquisition will rise comensurate to the cost of the product itself.
Regardless if you’re talking about the cost per action or the cost per acquisition, it’s clear that in-app Cost Per Action campaigns maximize your return on ad spend. On the Tapjoy Offerwall, you only pay for successful actions, so it’s guaranteed revenue, and engages only with high-intent consumers. Our network of more than 1.5 billion mobile consumers offers an unparalleled avenue to reach new customers and scale your brand. Run a test today, and see where it takes you.