CPA (Cost Per Acquisition)
- Cost Per Acquisition (CPA)
- Break-Even CPA..
- Multiple Conversion Values
- CPA Bidding - Conversion Optimiser
- Flexible (Custom) Bid Strategy – CPA
*A conversion is when a user performs a desired action (being tracked) on your website. This could be buying a product, downloading a file, clicking a link or any other desired action. Typically conversions are linked either directly or indirectly to revenue.
**Conversion tracking needs to be setup to see conversion data in AdWords.
Quick Description = The average cost of conversions
Calculation: Cost ÷ Conversions
Referred to as = Cost / conv.
CPA is a very popular metric in AdWords; account owners often set CPA targets as one of the primary goals of an account. CPA can be calculated per campaign, ad group, keyword, ad, Placement, etc as well as per ‘conversion name’. In any case this is calculated in the same way:
Cost / No. of Conversions = CPA
CPA is represented by a currency value and is always a positive number, for example; if you have a campaign with 30 conversions and a cost of $300, the Cost Per Acquisition is:
$300 / 30 = $10 CPA
CPA refers to an average CPA, dividing cost by conversions, unless there is only one conversion this is an average taken across all conversions. This becomes more relevant when multiple conversion values, which we discuss in this guide.
Where a conversion value exists for a conversion, we can establish the break-even CPA, meaning that there is a mathematical formula to calculate what the CPA would have to be to break-even. This is calculated like this:
Cost / Conversions = Conversion Value
Therefore, we can state:
Conversion Value x Conversions = Cost
So if we have a Conversion Value of $10, the break even CPA will also be $10 and any CPA that exceeds $10 will result in a loss (in profit) per conversion.
Many accounts have multiple conversions each with their own unique value; in this case looking at aggregated CPAs becomes meaningless. For example (and the sake of simplicity), if an account has two conversions being tracked… One of these is a product worth $10 (Conv. A) and the other is a product worth $1 (Conv. B). There is an obvious discrepancy between these two conversion values; simply aggregating all conversions will conflate these two values.
Continuing this example, we will assume the following
Conv. A = 20 Conversions, $250 Cost
Conv. A = 60 Conversions, $50 Cost
Here we have a total of 80 conversions and a total of $300 Cost, this would equate to a CPA of $3.75… This should immediately strike you as meaningless as we have two different break even CPAs and this is lower than one and higher than the other.
In this example, we would be much better off calculating the CPA per product:
Conv. A + $12.50 CPA (Loss of $2.50 per conversion)
Conv. B + $0.83 CPA (Profit of $0.17 per conversion)
Conversion optimiser is a feature / tool within AdWords that allows you to set CPA bids in two different ways, both described below. This bidding technology works well for campaigns that have received a good number of conversions (you will need conversion tracking setup to use this tool). This bidding method still charged you per click but aims to optimise for conversions by achieving a CPA target.
Conversion Optimiser uses historical conversion data to set CPC bids during auctions at the right value to achieve the CPA Bid you have specified. To qualify to use this tool the campaign must have received 15 conversions in the last 30 days.
The max CPA bid strategy uses a hard upper limit on bidding meaning that Google will try to avoid exceeding the CPA value you have defined. Bear in mind the previous description provided for calculating average CPA… With this bidding method you will need to set the CPA higher than what you actually want in order to achieve the CPA.
This is because some CPA’s will be higher and others lower, when you cap this at a specific value you remove higher outliers.
This can be useful when trying to keep a cap on CPA’s.
Using the target CPA allows Google to exceed the CPA, but will on average be closer to the CPA target than with Max CPA bidding.
We cover this in more depth in another guide, but this is a relatively new feature to AdWords as of late 2015. Working in a similar way to conversion optimiser, this tool is aims to reach a CPA target after an initial period of around 3-4 weeks where it aims to reach optimal performance. This is more accurate when sufficient conversion data exists.