Customer Acquisition Explained

Customer Acquisition Explained

Every business needs customers, an important metric entrepreneurs need to understanding is customer acquisition. Customer acquisition, specifically cost per acquisition (CPA), is a crucial marketing KPI that shows the average cost of gaining a new customer. Marketers need to track this metric to measure the effectiveness of their marketing campaigns.

A CPA calculation helps marketers to know the cost of each acquisition, which, in turn, allows them to refine their campaign optimization strategies.

An acquisition usually refers to a sale but can also be answered in a survey, a form submission, a request for a callback, a PDF download, etc.

Calculating customer acquisition

It is straightforward to calculate an advertising campaign cost per acquisition. It is simply the total cost of the advertising campaign divided by the number of new acquisitions.

How to track CPA

There are several methods you can leverage to track your CPA, including using:

  • a CRM system
  • CPA affiliate tracking software like Thrive or
  • UTM parameters
  • promotion codes

Why CPA is an important metric

CPA is one of many marketing metrics, including cost per conversion, lifetime value of a customer, customer retention rate, and more.

CPA is one of the more important marketing metrics because it relates directly to revenue generated by a marketing campaign – it shows whether your marketing efforts are successful. The figure also helps marketers to calculate future marketing budgets.

CPA allows marketers a detailed understanding of what it actually costs to acquire a new customer and if their marketing budget can accommodate that cost.

As you measure your CPA over time, you can expect your CPAs to increase as your brand grows and you acquire more customers at increased costs. However, keep in mind that higher CPAs can indicate that your marketing efforts are becoming less successful. On the other hand, lower CPAs can indicate that your marketing efforts are achieving your targets.

CPA figures may also be an indication that a specific marketing channel is not working for you.

What are the consequences of not tracking CPA?

If you don’t track your CPA, there is no way to know what it costs you to gain a new customer and you run the risk of stretching your marketing budget too far, spending time and money on ineffective marketing campaigns.

Tracking your CPA allows marketers to determine the success of their marketing efforts and thus discover the most cost-effective channels for their needs. Should a channel prove to be ineffective, you can always decide to investigate different channels.

How to optimize your CPA costs

Another marketing metric plays a key role here, namely your quality score. Your quality score is the metric that measures the user experience of your content, and whether users engage with your content and act upon it. It is the factor that has the most influence on where you rank in Google.

This metric measures the relevance and expert level of your content. Top-notch content is key to getting more conversions and earning top ranking on Google.

The bottom line? In order to rank high on Google and hopefully land conversions, captivating ad and landing page copy are paramount.

You need copy that slices through an ocean of similar copy vying for the same customers and their attention. The reality is that most consumers are so desensitized to ads that they just ignore any ad that pops up on a webpage. This state of affairs makes it especially challenging for brands to grab the attention of their target customers. 

Strategies for copy that will get the attention of your target audience

  1. Write copy that evokes curiosity

The key to writing copy that will pique your visitors’ curiosity, is having a good understanding of your audience and what they are looking for. If you know that, you can let them know that your product or service can solve their problem or satisfy a desire they have.

The trick is to pique your target audience’s interest without satisfying it. They must feel compelled to click on your ad on the promise that they will get something out of their action. Your copy must provide enough information but not all the information. Your target audience must get enough information to know what the ad is about, but not enough to know exactly what’s on offer. What they should be clear about is the benefits for them should they click on your ad.

  1. Appeal to the emotions of your target audience

Anybody who has ever bought a house will know that the decision to buy a home is an emotional one. No matter the drawbacks, if you fell in love with the view through the lounge window (or some similar factor) that is usually what decides your signature on the dotted line.

Ads are the same, and decisions to buy are also primarily emotional. In fact, research shows that emotions drive our decisions and logic justifies them afterward. So, if you can appeal to the emotions of your target audience, you have a better chance of captivating their attention.

The way to do that is not to tell your website visitors what to think or what’s best for them. Your task is to help them discover for themselves what feels right and would be best for them. Ultimately, they will come to a decision based on self-interest. They will think, “This feels good. This feels right for me. I must have this.”

While you must point out the features and benefits of your product or service, this will appeal to their logic, not their emotions. Think about the need your target audience has, how that need may make them feel, and plan your copy from there.

  1. Pay close attention to the copy on your landing page

When a person has clicked on your ad, you still need them to perform an action on your landing page that will turn them into a paying customer. Writing compelling landing pages requires special skills and expertise and the following considerations:

  • Intriguing headlines and subheadings
  • A clear explanation of the value of your lead magnet
  • No external links, so prospects are not tempted to click on them and leave your site
  • The inclusion of video content, catering to people’s preference for visual content
  • The inclusion of customer testimonials
  • Focus on the benefits of products or services, not the features
  • Conversational copy rather than technical writing
  • A carefully crafted call-to-action

What is a good CPA?

Well, it depends. There is no such thing as an ultimate description of a good cost per acquisition. The value depends on a number of factors, including the industry and a marketer’s digital advertising goal.

Rather than looking at a number, it might be more useful to see a good CPA as one that minimizes your cost, while maximizing your profit and increasing the number of people that sees your ads.

With CPA, you are in a conundrum: you want to increase your conversions, but the more conversions you have, the more the cost goes up. One strategy may be to look at the CPA of peers in your industry to see where you stand.

According to WordStream, the average conversion rate in Google ads varies widely across industries, from Apparel/Fashion & Jewelry and Furniture at around 2%, to 15% for Animals & Pets and Physicians & Surgeons.

The highest cost per acquisition in AdWords is just over $80 for the following industries: Attorneys & Legal Services and Careers, and Furniture, Finance & Insurance. The industries with the lowest cost per acquisition (less than $18) are Animals & Pets and Automotive Repair, Service, & Parts.

The biggest increase in cost per acquisition year over year is in Career and Employment with an increase of 52% from $54 to $81.

​​The report writers remark that since consumers don’t perform just one search before making a buying decision, ads are getting more clicks but fewer conversions, as people look at more options available to them. They predict that this trend will lead to lower conversion rates and higher costs per acquisition over time.

Cost per acquisition bidding

The cost-per-acquisition pricing model is popular with most marketers because they can determine what would count as an acquisition before they start advertising, in which case they only pay when that action takes place.

Talking about acquisition bidding is a bit of a misnomer as the “bidding” is nothing like normal bidding where the prize goes to the highest bidder. With advertising platforms like Google, the bidder with the highest Ad Rank wins, not the one with the most money.

How Ad Rank is calculated has never been revealed by Google, but the following factors are taken into account:

  • The bid (the amount a marketer will pay to have an ad displayed)
  • Expected click-through rate (CTR)
  • Ad relevance
  • Landing page user experience

These and other factors all play a role in determining the position on search engine result pages, because Google doesn’t want to favor companies with deep pockets. Instead, the search engine wants users to discover top-quality content and ads. Google favors and rewards ads with high- quality scores with high rankings on SERPs and lower charges.