What is CPA in Google Ads and How To Calculate It

CPA is a mode of advertising in Google Ads, offering an interesting way to work, but also carrying some risks.

Today’s article is all about that: we’ll discuss what CPA in Google Ads is, something quite simple that we can cover in just the first 5 minutes of our conversation.

But after that, I’d like to invite you to understand CPA differently, by analyzing how it behaves in a scenario outside of Google Ads, where it even takes on another name: CAC, Customer Acquisition Cost.

Today’s discussion is long and full of twists! Ready to dive in?

What is CPA in Google Ads?

CPA is a campaign objective in Google Ads where you set not the cost per click, but the expected cost per conversion in the ad.

Here’s how it works: you set a goal in Google Ads and establish an expected CPA to achieve that goal.

Let’s say the goal is to sell an online product, in a SaaS model.

With this setup and the desired CPA, you’re telling Google that you intend to pay X amount for each conversion of that goal.

At the same time, you’re letting Google know that if the conversion is unlikely to happen, it’s better not to enter that auction and save the budget for another SERP, another search.

This all works with Google Ads’ AI, which is quite advanced. If it understands that your desired CPA is too low for a specific auction, it won’t even display your ad.

This is a great way to work since you only pay if conversions happen. But at the same time, it’s a much more costly model, by far the most expensive in Google Ads.

In some cases, the cost of these CPA campaigns in Google Ads can be up to half of the sale value.

This type of ad is quite specific and is usually managed by very experienced professionals in Paid Media.

It’s as simple as that. To better understand it, we need to discuss its opposite, CPC:

What is the Difference Between CPC and CPA?

CPC is another type of ad, usually much cheaper. Its full name is Cost Per Click.

In Google Ads, when you search for keywords, you’ll notice that each one has a value.

That value is your CPC: every time your ad receives a click in the SERP where it’s displayed, you pay the keyword’s value.

It doesn’t matter if the person achieved the conversion goal or not. In fact, you don’t even set that goal—the goal is already defined as the click.

This is the main difference between CPC and CPA. In CPA, you set the conversion goal and only pay if it’s met.

And because of this, you’ll pay more.

It’s almost a way to ensure your ad gets a good amount of conversions, but you end up paying extra for them.

CPA is widely used in affiliate marketing since professionals in this niche need to generate conversions with third-party products to secure their income.

And in most cases, they don’t control the product or where it’s available. So, CPA makes more sense.

What is CAC and How Does It Relate to CPA?

CAC, or Customer Acquisition Cost, is one of the most important metrics in digital marketing.

This is because it’s the kind of metric that doesn’t work alone: it’s an indicator of both your marketing success and your business’s health.

And it also functions outside the digital marketing realm. All marketing efforts directly influence CAC, even those made offline.

And CAC directly impacts your profit at the end of the month.

The issue is that many people don’t see this influence, not because of the metric itself, but because they don’t measure it.

CAC, regardless of your market and the strategies you implement, needs to be measured constantly, action by action, and also on a macro scale.

There’s an obvious relationship between CPA and CAC, as well as a significant difference.

CPA is usually understood as a type of Google ad. Mention this acronym anywhere else, and it will be taken that way.

But at the same time, it indicates the same thing as CAC: the cost per acquisition.

The difference is that CPA, as a type of ad, is proactive—meaning you set the amount you want to spend in advance to close new sales.

Meanwhile, CAC is a marketing metric that focuses on understanding—after the action has occurred or during it—how much you’re spending to achieve specific goals.

Can I Use CAC and CPA for Other Purposes?

As the name suggests, CAC is the Customer Acquisition Cost, and CPA is a campaign objective in Google Ads.

But is it possible to combine these two metrics and use them for other purposes?

Absolutely: there’s a new way of analyzing your expenses and results in digital marketing by using these two metrics together, ignoring their last letters.

Think for a moment that we don’t just need to analyze customer acquisition. What if we analyze all acquisitions?

And what if, in addition, we consider the Cost Per Action (another name for CPA) without thinking about Google Ads, but thinking about all types of action?

This way, what were once simple metrics and ad types become data-driven analysis methodologies.

In this case, we can see even by the name that CPA works better when it’s specific, dealing with the costs incurred to carry out an action and achieve your goal.

In this exercise, we need to redefine what Acquisition and Action mean. Let’s do that below:

What Can Be Considered an Acquisition?

So, we understand that the best way to analyze CAC is on a micro scale, action by action, right?

But in these cases, what can we consider an acquisition?

Acquisition here means the completion of the campaign objective.

Understanding what that objective is, is simple: every campaign has one, usually determined during its creation.

For example, you set up a Google Ads campaign with the goal of lead conversion.

Your goal, then, is lead generation. And your acquisition is each new lead generated.

But what if you create a campaign focused on sales, also through Google Ads? Each sale is an acquisition.

Another example, just to clarify: you run a campaign on Social Ads, specifically on Instagram, to gain more followers. Each new follower is an acquisition.

That’s how CPA works: each campaign has objectives, and each objective completed within the action is an acquisition.

What is an Action?

So, we understand that acquisition is completely related to the action you take, right?

But at the same time, we also need to understand what exactly this action is. Can it be anything?

Yes, it can be any action, as long as it’s worth measuring the costs it brought to your marketing.

But how do you know if it’s worth it? By looking at the acquisition.

An example to clarify: a post on Instagram brings more followers. In other words, the post had a cost to produce and two main objectives: generate engagement and increase followers.

But you post three times a week. And the goal of all the posts is always this: to bring more followers and increase engagement.

Is it really necessary to measure the CPA of each of these posts? Not so much.

At the same time, you can measure the CPA of the entire social media strategy, breaking it down by periods, for example.

Now, if you make a more specific post—a video, for example—and want to know if it had good results, it’s worth calculating its CPA to understand if the strategy is valid or should be discontinued.

These are the nuances that come with CPA, and it’s always good to keep an eye on them to get the most out of the metric without worrying about overworking or inaccurate data.

How to Calculate CAC?

The CAC formula is the easiest part of the calculation. What’s really complicated is understanding what expenses you’re incurring to formulate the equation.

Speaking of which, you can calculate CAC as follows:

CAC = total number of acquisitions / investment in the action

In other words: if you had 2,000 acquisitions (remember to relate this to your goal!) and spent $200.00, your CAC was $10.00.

The calculation only gets complicated when you start trying to understand what the real investments of the action were.

Here, the more comprehensive you are, the more accurate the data will theoretically be.

For example: if you include proportional values of the marketing team’s salary, your CAC will also reflect the time spent on campaign development.

Many digital marketing agencies and internal marketing departments end up ignoring this part of the calculation because, while it brings predictions, it also generates a greater possibility of error.

But let’s break this down in an item below to make it easier to organize ideas, okay?

How to Compose the CAC Investment Variable

Before continuing, just a quick note: here we’ll discuss, in a more general way, the costs that make up the CPA of specific actions.

To be even more specific, I’ve also broken down the CPA calculation in more detailed points in the following section, such as campaigns on Google Ads, organic traffic, Social Ads, etc.

Here we’ll only talk about the general variables, assuming you already know the gross investment in the campaign, okay?

Typically, the variable costs added to the CAC calculation are:

• Proportional salaries of those involved: There are project management systems that can track exactly how much time each person spent working on each activity. By adding up these hours and relating them to the position, you can get a more accurate view of how much was actually spent on salary costs for a specific action
  .
• Cost of platforms used: If you’re running an email marketing campaign, you need an email marketing platform. How much does it cost? It’s important to include this information in your CPA as well. Typically, the subscription fee is included proportionally. If the campaign lasted 2 weeks (including preparation), just find the amount spent during that period — half of the monthly fee.
  
  
• Freelancers: Was a freelancer hired to create the material? Include the agreed-upon amount. If they are a regular freelancer, do the same calculation as the first point.
• Purchases: Did you need to buy anything for the campaign? This is quite common in offline marketing strategies, such as guerrilla marketing.
  
• Sales team: Did the sales team need to do any lead outreach work? If so, use the same calculation as the previous point. This is quite common in Outbound Marketing actions, which usually lead to sales and involve seller contact.

More operational costs don’t need to be included because they will certainly complicate your calculations.

It’s not necessary, for example, to include a portion of your electricity bill unless, of course, it increases due to the campaign — the team had to work overtime, for example, which increased both salaries and energy consumption during the period.

How to Find the Total Number of Acquisitions?

There are various ways to find the number of acquisitions from a particular campaign, depending on where that campaign is conducted.

Some tools will provide more information than others about this aspect of the work.

I’ve listed a few of them here. Take a look:

• Google Ads: Through the report view. You can see any information about any campaign, including the amounts spent and the objectives achieved. We have a more comprehensive GA4 guide here on the blog.
  
• Meta Ads: Through the Meta business platform, Ads Manager, also known as Meta for Business. It provides all the information you need.
  
• Other platforms: Each has its own analytics;
  
• Email marketing platforms: They usually provide information about what’s being done in each email, such as the number of clicks on the button. In more robust inbound marketing platforms, you even have access to information such as the number of leads generated by a campaign.

Well, now that we’ve discussed these more specific points, this part of the article will deal with some more general ones.

Let’s now talk about how to understand CPA in various types of actions.

The CAC for organic traffic, for example, is quite different to measure — and more challenging too — than the CAC for ads with a well-defined budget.

To expand your calculation capacity, I’ve included some more specific examples in the next item for us to discuss.

Shall we take a look?

How to Calculate CAC in Different Types of Actions

The most important thing about everything we’re discussing here is to know, off the top of your head, how to calculate the CAC in your actions.

We talked about how this is the best way to make the calculation, but we need to discuss how to actually do the calculation.

This is where the difference lies during the meeting. They won’t ask you the basics. They will suggest the campaign and ask for ways to calculate the CPA within it.

Let’s discuss the most common types of campaigns in marketing. If you have any suggestions, leave them in the comments!

CAC for Paid Media

This is the simplest way to calculate the CPA.

Quick calculations usually include just the amount invested in the analyzed period and the number of acquisitions.

These are very quick, non-business calculations that are typically used to prove the result of specific actions.

It’s assumed that when these numbers are calculated, everyone is aware that there are other costs that would increase the CPA if analyzed — the ones we listed above.

In any case, all the necessary information is available on the platforms themselves. Google even provides the average CPA in ad reports without you needing to calculate anything.

It’s also possible to set desired average CPA values ​​in your ad groups and use them as a target.

CAC for Organic Traffic

The Cost per Acquisition for organic traffic is much more challenging to calculate.

I’ve separated it from the next item, content production, because organic traffic has a much clearer goal: to generate visitors to your site.

We won’t even talk about lead generation for now. Here, metrics and indicators often difficult to find come into play.

First, it’s necessary to understand the costs. Who is involved in the production of your materials?

These costs need to be calculated. Since the strategy is more long-term, it’s generally easier to calculate month by month or quarter by quarter.

In addition, operational costs also need to be factored in:

• Keyword research;
• The platform used to research keywords;
• Time spent conducting this research;
• Material review;
• Material publication;

These are the main steps for producing content focused on SEO for organic traffic. You need to account for them to determine your cost.

But what about the results? Simple: look directly at Google Analytics.

But it works with three different metrics for visitors:

• Engaged sessions per user: How many people navigated your site, excluding the bounce rate;
  
• Users: How many people in total visited your site;
  
• Pageviews: How many times your pages were displayed to users on your site.

All these metrics are important, and each represents a different objective in organic traffic.

But at the same time, the most commonly used in CPA calculations is the Users metric. It indicates how many unique users visited your site during the analyzed period.

CAC for Email Marketing

Email marketing brings some different objectives that can complicate the CPA calculation.

The main metrics delivered by an email campaign are as follows:

• Delivery rate vs. Bounce Rate: The number of emails delivered;
• Open rate: The number of people who opened your email;
• Click-through rate: The number of people who clicked on your CTA.

The most commonly used metric to calculate CPA in email marketing is the click-through rate, as it is the most important for your strategy and ROI.

In calculating what’s spent, you need to take into account the work of the writer and designer who together created the piece.

And it’s also necessary to include the cost of the email marketing platform in the equation.

If it’s a comprehensive Inbound Marketing platform that also sends emails, you need to consider the total cost of the tool, not just the email module.

CAC for Content Production in General

Here we’ll talk about content production for social networks and YouTube, okay?

Usually, content production for social networks has the primary objective of generating engagement within the networks themselves.

In other words, the number of likes, comments, and the reach of your post.

There is even an engagement rate, which we explain better in our article on the topic:

This engagement rate is great to include in your calculation, but just keep in mind that it is usually expressed as a percentage or a specific variable, as building it is a task that involves specific metrics.

Everything clear so far?

The amount to be included in the calculation depends on what you’re spending to produce your content. It’s similar to what we saw with blogs and emails, with very similar steps.

In the case of video production, it’s also necessary to consider the equipment used for recording, if they are not owned, and the costs related to the recording day, including the time of participants if they are your employees.

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So, what did you think of our exercise?

You may have noticed some similarities with this way of thinking about CPA and CAC, but you might be wondering where they come from.

It’s simple: the exercise we did together here in the article is closely related to another metric — ROI.

We have a very comprehensive article that talks about it. It’s worth reading right here on the blog.

Click the link below to go there. Thanks for reading, and we’ll see you there!

➡️ Marketing ROI: What It Is and How to Maximize Yours