Cost Per Action Advertising (CPA)

Cost per action is an online advertising measurement that allows advertisers to charge the customer only for specified actions taken by prospective users. The actions that result in conversion will be determined by the advertiser. 

Cost per action advertising allows marketing teams to control costs for specific marketing objectives. As the payment for the ad is based only on completed actions, it gives the teams greater control and flexibility for their ads. It also enables marketing teams to maximize their return on investment across various marketing channels. 

CPA’s are useful marketing tools to control costs since the charges apply only after a chosen action is completed. It also enables the marketer control for tracking and ensuring the return on investment is maximized sufficiently. Tracking cost per advertising helps in understanding what works with users, and what doesn’t and ensures the marketing team is investing in the channels that are most effective and efficient. 

How to Calculate CPA?

Formulas used to calculate cost per action can get quite complex, but the most basic approach is: CPA = Total marketing spend (month/year) divided of Total number of customers acquired

The greater the number of touchpoints before a conversion is required, the more expensive it becomes to acquire a customer. Cost per advertising is tracked for the channel the ad is created. For example, if you spend $1000 on LinkedIn ads and acquire 10 new customers, your CPA would be $100 per new acquisition for LinkedIn channel only. It helps to also know what your customer acquisition costs have to be for your company

For eCommerce stores, the typical tracking methods for understanding cost per action include 

Google analytics: Conversions on google analytics can be tracked by using tagged links where appropriate. These will usually indicate the source, medium, and campaign. Depending on the action the marketer wants to track, experimenting with various tracking codes on a “thank you” page. 

Voucher codes: Voucher codes are an effective strategy that can be implemented alongside email and social media campaigns. Voucher codes that shoppers are required to enter on checkout are convenient, cost-effective and easy to implement. 

Cookies: The most commonly used cost per action tracker are cookies. This involves leaving a small piece of code on the user’s browser to be accessed later. 

Phones: Old fashioned tracking involves getting telephone numbers that are affiliated with specific campaigns, and the length of resulting phone calls can help determine if the action was beneficial to the advertiser. 

Cost per action gains usefulness once retailers are able to figure out how much a certain customer’s action is worth to the business. This ensures the right amount of advertising budget is put in place and this can be optimized to lower cost per action costs until it is shown that the money involved is paying dividends. 

One of the most effective ways to ensure a user completes the desired action on an advertisement is to fine-tune messaging, and call to action to make it more compelling and user friendly. A/B testing various ads is an assured way to understand what kind of messaging and design leaves a good first impression and captures user attention.