How do you calculate your maximum cost per acquisition (CPA)?
If you are a performance focused marketer, you’re likely less concerned with tactics like branding and metrics like ad viewability. CPA focused marketers are often most focused on bottom line cost per acquisition metrics. A conversion or acquisition is any desired action the Web marketers is trying to achive and include users filling out a lead form, registering for an online event, signing up to a newsletter, making a onetime purchase or signing up for a recurring service. The formula for deriving cost per acquisition (CPA) is usually straight forward and looks something like this:
Total cost of the media: $1000
Total conversions: 12
Cost per conversion formula: $1000 / 12 = $83.33
The CPA for our hypothetical marketer in the above scenario is $83.33. Some marketers add other costs associated with administering their campaign including technical fees and other expenses including employee salaries, ad agency fees etc. The 2 most common questions most marketers ask themselves is:
- 1. How can I achieve the lowest CPA with high scale?
- 2. What is the highest CPA I am willing to pay at scale?
The 2 questions are one in the same because when you understand online media at scale you know that the larger the scale, the higher the CPA. CPAs are different for every advertiser, every campaign, and every channel. We work with clinical trials recruiters who are delighted to see CPAs of $1500 to get 1 user to participate in specific types of clinical trials. We also have marketers of small ticket products like vitamins and supplements whose CPA goal can be no greater than $12.50 per purchase. Most CPA focused marketers are using cost per click (CPC) pricing models and often use unbranded, content style, native advertising as the vehicle. In the case of Tap Native those 3 elements apply; the targeting is health focused and contextual meaning that ads for allergy medications can be targeted to appear in article about allergies. Ultimately each part of your sales funnel will determine the CPA.
Each stage of your campaign should be optimized to ensure maximum conversions. A/B testing ad creatives and targeting is typically half the formula. Because native ads are often just image+text, creating many ad variations is easy and fast and can be tested quickly and rather inexpensively. Ideally marketers should create different types of ads which speak to and communicate different message points and have different targeting criteria based on their intended audience. The Tap Native dashboard will very quickly detail how those ads preformed which will give you indications about what audiences respond to most. This will allow you to optimize and refine the campaign by pausing what’s not working and iterating on what is working. Your landing pages are the other key ingredient to optimizing CPAs. Your ads and landing pages should be optimized separately but they are not separate. If the ads feature women and the landing page features men, you may be sending mixed messages. If the landing page is simply an order form without any additional information, you will likely see a high bounce rate. Most of the most successful campaigns we have seen share a similar user experience which look a lot like this:
A native ad speaks to a specific problem faced by the target audience and offers a simple solution. Solve a real problem and you will create genuine interest.
Landing page(s) continue your offer’s story by detailing the problem and your solution. If your ad’s message does not match the landing page, the bounce rate will be extremely high. Continuity of message from the ad to the landing page is critical. Landing pages contain key concise messages, not long drawn our text. You should add product examples, credible 3rd party testimony and highlight different product types or options. Illustrating that your product is widely used by others is also key. If it is not 100% clear to visitors that your product is already widely used the conversion rate will be lower.
Your pricing model is critical to stepping visitors into your product. Consider free trials, initial discounts, add expiration dates or limits on discounts. Add 3rd party credibility to any credit card forms so its clear that transactions are safe. Finally, study the leaders in your space, how do they do it?
Some products are one-time purchases, so the CPA formula needs to include a margin for your organization to operate and scale the campaign. Other products carry a recurring revenue value per customer and a known average time frame that revenue will likely continue such as a subscription to a service. If your product sells for $100 and your margin is 50%, you may only be able to pay a CPA of $25 which means your net profit on $100 is $25. If you’re willing to break even to seed the market you might be willing to pay a much higher CPA. And if you already know that your average customer buys monthly for 5 months, you may want to scale the campaign and might be willing to accept a $75 CPA.
Learning how your ads, landing pages and order forms preform is not free. Many marketers allocate 25% of their campaigns to learning and testing and the other 75% to scaling. Regardless of the vendors you use, make sure you have plenty of data to guide you. Cheers to your campaign’s health!
Tap Native ad units are integrated within the content of popular health destination sites. You can see in the example below that Tap Native ad units focus on health and provide the source of the content: