CPA: what it is, how it is calculated and how to use it

What is CPA?

CPA (cost per action) is the amount of money an advertiser spends for each specific action taken by a user who clicks on an ad. These actions can be anything from purchasing a product to registering on a website, subscribing to a newsletter or completing a questionnaire.

In marketing, CPA also serves as a model for determining the cost of online advertising, based on paying only for specific targeted actions (conversions) taken by users. This differs from other methods, such as CPC (cost per click) or CPM (cost per thousand impressions), and provides a way to manage advertising costs more efficiently. CPA payment ensures that you focus on attracting targeted visitors, minimising the chances of unproductive budget allocation.

How to calculate CPA

For example, the owner of a tattoo studio launched an advertising campaign to expand his client base and attract new potential clients, investing UAH 10,000 in promoting his services through various media channels. The marketing efforts resulted in a variety of responses: 15 completed application forms, 10 phone calls and 25 messages, generating a total of 50 potential customers (leads).

In this case, the cost per action (CPA) is calculated by dividing the total advertising cost by the number of leads generated: UAH 10,000 / 50 leads = UAH 200 per lead.

The effectiveness of an advertising campaign is measured by this cost: if it is equal to or less than the planned budget for acquiring a customer, the campaign is considered successful.

However, it should be noted that not all leads turn into actual customers. Typically, around 20% of applications are wasted due to incorrect contact details or lack of response to feedback. In addition, only one in three qualified leads typically results in a purchase (the proportion may vary by industry).

The ideal CPA cost is therefore unique to each business and directly related to the value of the product or service being offered.

What is a targeted action?

A targeted action is a specific user activity that brings a direct benefit to the business, such as revenue or a potential opportunity for further engagement. Depending on the type of business, these actions may include

• Purchasing goods or services - a common practice for e-commerce platforms and marketplaces;
• Downloading price lists - relevant for trading companies and service providers;
• Filling out a contact form or requesting a callback - important for service companies and providers;
• Subscribing to an email newsletter or downloading a specific file - useful for content providers such as blogs, news portals and educational projects;
• Registering on the website - a necessary action for online services, social networks and applications.

Such targeted actions are closely linked to key business objectives and require careful selection and a sensible approach. It is important not only to choose the right ones, but also to effectively monitor and optimise acquisition costs through CPA to maximise the ROI of your advertising campaigns.

What CPA depends on

Cost per action (CPA) is a key indicator in online marketing that reflects the effectiveness of advertising campaigns. This indicator can change under the influence of several factors:

1. Quality of traffic: Targeted traffic that is highly motivated to take certain actions can significantly reduce the CPA. Conversely, the mismatch of the audience increases the cost per action due to low conversion.
2. Choice of advertising channel: Some platforms offer better access to the target audience, which can lead to more effective results and lower CPA.
3. Target audience: The specifics and competition in the target segment affect the cost per conversion. The more competition, the more expensive it is to acquire a customer.
4. Advertising budget: Larger budgets allow you to better customise campaigns and optimise their performance, which can lead to lower CPAs due to the scale of savings.
5. Landing page quality: Optimising the landing page for user experience and clarity of call to action can significantly increase conversions and reduce cost per action.
6. Business theme: In some industries, the cost per click can be higher due to high competition, leading to an increase in CPA.
7. Sales funnel: The effectiveness of each stage of the sales funnel affects the number of leads that reach the final stage, thereby reducing the cost of customer acquisition.

Optimising these aspects can help companies reduce CPA and increase the ROI of their advertising campaigns.

Conclusion

CPA (cost per action) is defined as the amount spent on advertising divided by the number of targeted actions taken, such as purchasing a product, submitting contact information or installing an app. This metric helps to evaluate the effectiveness of advertising campaigns by measuring the specific cost of achieving advertising goals.

CPA marketing is an advertising payment model where payment is only made when users take specific actions that the advertiser deems valuable. This allows you to focus on specific results and optimise your advertising spend.

Specialised CPA platforms provide advertisers with tools to launch and manage actionable campaigns. They provide access to a wide network of partners that can significantly increase audience reach and advertising effectiveness.