When trying to get new customers, cost-per-acquisition (CPA) is a vital way of measurability which we absolutely need to have a proper grasp on.
Why? You may ask…
You see, it’s because it measures the cost of getting a new customer.
Let’s say we spend $1000 on an SMS broadcast and acquire 20 online sales, it means that the CPA for an online sale is $50.
Spent on ads: $1000
Sales acquired: 20
CPA = $1000 ÷ 20 = $50
The great thing is we understand that an average of $50 is spent on ads to get a new customer. So that leaves us with 2 paths…
To either device ways to scale up the advertising campaign, or to reduce the CPA .
But of course, it isn’t as simple as it sounds, and things may not go as planned. So be sure to keep the following points in mind to avoid the usual pitfalls.
1. Scaling up the advertising campaign
Let’s say we spend $1000 on an Email Blast and get 50 newsletter sign-ups. Theoretically, $2000 would get us 100 right?
And the answer is that it really depends on several factors. You see, doubling our ad budget may not get us double the amount of sign-ups immediately. But it may very well set the stage for plenty of future sales – seeing that a bulk of recipients may take more time to reach buying decisions.
And there’s the law of diminishing returns whereby we reach a point when spending more does not bring in a higher return-on-investment. That’s because the number of ads may have increased, but the number of potential customers reachable via the advertising platform remain the same.
So keep this in mind when faced with scalability. Be sure to experiment with progressive increments and allow a long enough timeline to interpret results depending on the nature of the product or service. Higher ticket items and recurring fees tend to require longer timelines.
2. Reducing the CPA
The most immediate attempt for reducing CPA would be to reduce the cost of Ads. But this leaves us with the challenge to seek out ad avenues that cost less but deliver identical results. If that’s the case, we’re better off adding an additional Ad avenue than to jump ship just for cutting costs.
The idea is really to allocate marketing dollars more precisely. And by that, it means to allocate budgets to, as much as possible, be spent only on reaching demographics which fit the criteria of a potential paying customer.
This can, and will instantly bring our CPA down by several notches – since we’ve basically skipped spending on the very people who are most unlikely to patronize our business.
Here’s an example:
We sell basketball shoes online and want to advertise the business with a $500 budget.
This $500 allows us to buy a radio ad on either a channel where the host talks about men’s fashion, or professional basketball.
Both radio channels have the same number of listeners.
Simply by picking the professional basketball radio channel, where most potential customers are, the $500 budget is instantly maximized.
The only mode of advertising that does exactly this is Database Marketing. Whereby every cent is literally allocated to reaching out to individual consumers who fit the bill of a bona fide potential customer.
- Gym Memberships? – Broadcast an MMS to residents living in the vicinity.
- Sell Children’s books? – Broadcast an Email to a community of Young parents.
- B2B Business? – Broadcast an SMS to Local Business owners.
With the understanding of what majority of our customers have in common in terms of their profile (age range/gender/location/income level/etc), we are able to reach out to consumer-pools with similar profiles.
So be sure to explore it, because if it’s anything that will reduce CPA, it’s Database Marketing.