{"id":2368,"date":"2024-08-22T19:43:37","date_gmt":"2024-08-22T19:43:37","guid":{"rendered":"https:\/\/getleadster.com\/blog\/?p=2368"},"modified":"2024-11-07T02:47:22","modified_gmt":"2024-11-07T02:47:22","slug":"what-is-cpa","status":"publish","type":"post","link":"https:\/\/getleadster.com\/blog\/what-is-cpa\/","title":{"rendered":"What is CPA in Google Ads and How To Calculate It"},"content":{"rendered":"\n

CPA is a mode of advertising in Google Ads<\/strong>, offering an interesting way to work, but also carrying some risks.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

But after that, I\u2019d 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.<\/p>\n\n\n\n

Today\u2019s discussion is long and full of twists! Ready to dive in?<\/strong><\/p>\n\n\n\n

What is CPA in Google Ads?<\/strong><\/h2>\n\n\n\n
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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.<\/p>\n\n\n\n

Here\u2019s how it works: you set a goal in Google Ads and establish an expected CPA to achieve that goal.<\/p>\n\n\n\n

Let’s say the goal is to sell an online product, in a SaaS model.<\/p>\n\n\n\n

With this setup and the desired CPA, you\u2019re telling Google that you intend to pay X amount for each conversion of that goal.<\/p>\n\n\n\n

At the same time, you’re letting Google know that if the conversion is unlikely to happen, it\u2019s better not to enter that auction and save the budget for another SERP, another search.<\/p>\n\n\n\n

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\u2019t even display your ad.<\/strong><\/p>\n\n\n\n

This is a great way to work since you only pay if conversions happen. But at the same time, it\u2019s a much more costly model, by far the most expensive in Google Ads.<\/p>\n\n\n\n

In some cases, the cost of these CPA campaigns in Google Ads can be up to half of the sale value.<\/p>\n\n\n\n

This type of ad is quite specific and is usually managed by very experienced professionals in Paid Media.<\/p>\n\n\n\n

It’s as simple as that. To better understand it, we need to discuss its opposite, CPC:<\/p>\n\n\n\n

What is the Difference Between CPC and CPA?<\/strong><\/h3>\n\n\n\n

CPC is another type of ad, usually much cheaper. Its full name is Cost Per Click.<\/p>\n\n\n\n

In Google Ads, when you search for keywords, you’ll notice that each one has a value.<\/p>\n\n\n\n

That value is your CPC: every time your ad receives a click in the SERP where it\u2019s displayed, you pay the keyword’s value.<\/p>\n\n\n\n

It doesn\u2019t matter if the person achieved the conversion goal or not. In fact, you don\u2019t even set that goal\u2014the goal is already defined as the click.<\/p>\n\n\n\n

This is the main difference between CPC and CPA. In CPA, you set the conversion goal and only pay if it\u2019s met.<\/p>\n\n\n\n

And because of this, you\u2019ll pay more.<\/p>\n\n\n\n

It\u2019s almost a way to ensure your ad gets a good amount of conversions, but you end up paying extra for them.<\/p>\n\n\n\n

CPA is widely used in affiliate marketing since professionals in this niche need to generate conversions with third-party products to secure their income.<\/strong><\/p>\n\n\n\n

And in most cases, they don\u2019t control the product or where it\u2019s available. So, CPA makes more sense.<\/p>\n\n\n\n

What is CAC and How Does It Relate to CPA?<\/strong><\/h2>\n\n\n\n

CAC, or Customer Acquisition Cost, is one of the most important metrics in digital marketing.<\/p>\n\n\n\n

This is because it\u2019s the kind of metric that doesn\u2019t work alone: it\u2019s an indicator of both your marketing success and your business\u2019s health.<\/p>\n\n\n\n

And it also functions outside the digital marketing realm. All marketing efforts directly influence CAC, even those made offline.<\/strong><\/p>\n\n\n\n

And CAC directly impacts your profit at the end of the month.<\/p>\n\n\n\n

The issue is that many people don\u2019t see this influence, not because of the metric itself, but because they don\u2019t measure it.<\/p>\n\n\n\n

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

There\u2019s an obvious relationship between CPA and CAC, as well as a significant difference.<\/p>\n\n\n\n

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

But at the same time, it indicates the same thing as CAC: the cost per acquisition.<\/strong><\/p>\n\n\n\n

The difference is that CPA, as a type of ad, is proactive\u2014meaning you set the amount you want to spend in advance to close new sales.<\/p>\n\n\n\n

Meanwhile, CAC is a marketing metric that focuses on understanding\u2014after the action has occurred or during it\u2014how much you\u2019re spending to achieve specific goals.<\/p>\n\n\n\n

Can I Use CAC and CPA for Other Purposes?<\/strong><\/h2>\n\n\n\n
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As the name suggests, CAC is the Customer Acquisition Cost, and CPA is a campaign objective in Google Ads.<\/p>\n\n\n\n

But is it possible to combine these two metrics and use them for other purposes?<\/p>\n\n\n\n

Absolutely: there\u2019s a new way of analyzing your expenses and results in digital marketing by using these two metrics together, ignoring their last letters.<\/p>\n\n\n\n

Think for a moment that we don\u2019t just need to analyze customer acquisition. What if we analyze all acquisitions?<\/strong><\/p>\n\n\n\n

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?<\/p>\n\n\n\n

This way, what were once simple metrics and ad types become data-driven analysis methodologies.<\/p>\n\n\n\n

In this case, we can see even by the name that CPA works better when it\u2019s specific, dealing with the costs incurred to carry out an action and achieve your goal.<\/p>\n\n\n\n

In this exercise, we need to redefine what Acquisition and Action mean. Let\u2019s do that below:<\/p>\n\n\n\n

What Can Be Considered an Acquisition?<\/strong><\/h3>\n\n\n\n

So, we understand that the best way to analyze CAC is on a micro scale, action by action, right?<\/p>\n\n\n\n

But in these cases, what can we consider an acquisition?<\/p>\n\n\n\n

Acquisition here means the completion of the campaign objective.<\/p>\n\n\n\n

Understanding what that objective is, is simple: every campaign has one, usually determined during its creation.<\/p>\n\n\n\n

For example, you set up a Google Ads campaign with the goal of lead conversion.<\/p>\n\n\n\n

Your goal, then, is lead generation. And your acquisition is each new lead generated.<\/strong><\/p>\n\n\n\n

But what if you create a campaign focused on sales, also through Google Ads? Each sale is an acquisition.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

That\u2019s how CPA works: each campaign has objectives, and each objective completed within the action is an acquisition.<\/p>\n\n\n\n

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What is an Action?<\/strong><\/h3>\n\n\n\n

So, we understand that acquisition is completely related to the action you take, right?<\/p>\n\n\n\n

But at the same time, we also need to understand what exactly this action is. Can it be anything?<\/p>\n\n\n\n

Yes, it can be any action, as long as it\u2019s worth measuring the costs it brought to your marketing.<\/strong><\/p>\n\n\n\n

But how do you know if it\u2019s worth it? By looking at the acquisition.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

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

Is it really necessary to measure the CPA of each of these posts? Not so much.<\/p>\n\n\n\n

At the same time, you can measure the CPA of the entire social media strategy, breaking it down by periods, for example.<\/strong><\/p>\n\n\n\n

Now, if you make a more specific post\u2014a video, for example\u2014and want to know if it had good results, it\u2019s worth calculating its CPA to understand if the strategy is valid or should be discontinued.<\/p>\n\n\n\n

These are the nuances that come with CPA, and it\u2019s always good to keep an eye on them to get the most out of the metric without worrying about overworking or inaccurate data.<\/p>\n\n\n\n

How to Calculate CAC?<\/strong><\/h2>\n\n\n\n

The CAC formula is the easiest part of the calculation. What\u2019s really complicated is understanding what expenses you\u2019re incurring to formulate the equation.<\/p>\n\n\n\n

Speaking of which, you can calculate CAC as follows:<\/p>\n\n\n\n

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CAC = total number of acquisitions \/ investment in the action<\/p>\n<\/blockquote>\n\n\n\n

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.<\/strong><\/p>\n\n\n\n

The calculation only gets complicated when you start trying to understand what the real investments of the action were.<\/p>\n\n\n\n

Here, the more comprehensive you are, the more accurate the data will theoretically be.<\/p>\n\n\n\n

For example: if you include proportional values of the marketing team\u2019s salary, your CAC will also reflect the time spent on campaign development.<\/p>\n\n\n\n

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.<\/p>\n\n\n\n

But let’s break this down in an item below to make it easier to organize ideas, okay?<\/p>\n\n\n\n

How to Compose the CAC Investment Variable<\/strong><\/h2>\n\n\n\n

Before continuing, just a quick note: here we\u2019ll discuss, in a more general way, the costs that make up the CPA of specific actions.<\/p>\n\n\n\n

To be even more specific, I\u2019ve 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.<\/p>\n\n\n\n

Here we\u2019ll only talk about the general variables, assuming you already know the gross investment in the campaign, okay?<\/p>\n\n\n\n

Typically, the variable costs added to the CAC calculation are:<\/strong><\/p>\n\n\n\n