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Welcome to incognito money Podcast CPA in SEO – How Much Should You Pay For a Conversion? Cost per action, or CPA – sometimes referred to as cost per acquisition – is a metric that measures how much your business pays in order to attain a conversion. The formula itself looks like this: Cost of CPA = Total Cost of Purchase / Conversion Rate. If you want to increase your ROI and make sure you’re receiving the most value from your digital marketing campaigns, it’s important to understand how CPA works and how you can use it to your advantage. What are we measuring? We’re measuring how much you can expect to pay for each conversion on your website. After all, if you’re paying more than $1 per new sign-up or purchase, you might be getting ripped off by your advertising partner or vendor. Calculating CPA Cost per action, or CPA, is similar to cost per click (CPC), except that instead of paying when someone clicks your ad, you pay when they take some sort of desired action. So if you are running an advertising campaign to get users to sign up for your email list, you would use CPA. If someone visits your website and then signs up for your email list within a specified time period after visiting, then you have successfully gotten them to perform an action and have qualified them as leads. The 4 Types of Costs The term cost per action can have a few different meanings. First, it refers to how much your business is paying for each conversion that takes place as a result of your marketing efforts. CPA also can be used as an acronym for cost per acquisition or cost per click, both of which refer to similar metrics. Order Handling Fees CPA marketers are involved with what is called cost per action (CPA) marketing. This means that an individual pays to take an action, such as completing an online form or downloading an eBook, with a certain expectation of return. The conversion rate should be relatively high to make CPA marketing worthwhile: If you pay $1 for every 100 downloads of your eBook, but only 2% of those people convert into paying customers, you will lose money. Shipping Costs Now, back to our original question: how much should you pay for a conversion? Unfortunately, it depends on a number of factors, including your niche and goals. For example, some marketers choose to limit their cost per acquisition (CPA) by only paying when prospects sign up for something with real monetary value. If you sell items that cost $10 or more, then paying between $0.10 and $1 per acquisition may be best. Customer Acquisition Costs What is CPA Marketing? Customer acquisition costs are often used interchangeably with cost per acquisition, or CPA. Like CPA, CAC measures how much you pay for a conversion. The difference between these two measurements is that your business pays only after a customer has converted (for example, purchased something from your online store). In other words, with CAC, if someone comes to your site and browses around but doesn’t convert or purchase anything from you, you still pay for those visits. Credit Card Transaction Fees Many businesses are charged fees when processing credit card transactions. The amount of your fee depends on a variety of factors, such as your average transaction size and what type of credit card you accept. If you’re paying for customer conversions using pay-per-click (PPC) advertising or marketing channels, it can be helpful to understand how much you’re spending per conversion. Recurring Costs In some instances, your CPA can be recurring, such as when you use an agency to drive visitors to your site or place ads on Facebook. Be sure to include these costs in your calculation if they apply. Recurring costs typically consist of an initial setup fee and then ongoing monthly fees for services or products. Maximizing Profit With Each Sale (ROAS) Return on ad spend, or ROAS, is an important metric to track when it comes to analyzing your PPC campaigns. It’s calculated by dividing your revenue by your cost per click (or cost per action). Thus, as you can imagine, maximizing your profit with each sale is quite important if you’re looking to get more out of each and every campaign. Factors That Affect ROAS Your business will want to look at several different factors when deciding on how much it should pay for each conversion. The most important of these is your business’ average order value (AOV). A higher AOV means you’ll be willing to spend more per conversion, whereas a lower AOV means you’ll need to pay less for conversions. Other factors include your acquisition costs and what competitors are doing in terms of CPA.