What it means
Start with the accountant. A Certified Public Accountant has passed a rigorous professional examination, met education and experience requirements and been licensed by a state or national board.
Only licensed professionals may use the title, and they are bound by ethical standards and ongoing training rules. CPAs do more than tax returns.
They prepare and audit financial statements, advise on tax planning, support mergers and acquisitions and serve as finance directors or consultants. When a bank or investor asks for audited accounts, they expect them to be signed by a qualified firm.
The second meaning belongs to marketing. Cost per acquisition is the total cost of a campaign divided by the number of customers it brought in, or the number of times a defined action, such as a sign-up or sale, was completed.
It tells a marketing manager what it costs to buy one result. CPA is most useful when compared with the value of a customer.
If acquiring a customer costs $50 and that customer is worth $400 in gross profit over their lifetime, the campaign is healthy; if the customer is worth only $40, it loses money. Finance and marketing teams therefore pair CPA with customer lifetime value (the total profit a customer is expected to generate) and payback period.
The definition of an acquisition matters. Some firms count a free trial as an action, others count only a paying customer, and the resulting CPAs can differ by a factor of ten.
Agree the definition before comparing campaigns or agencies, and always read the context to know which CPA is being discussed. Because the same letters carry two meanings, always check the surrounding discussion.
A conversation with an auditor about CPA firms is a different subject from a conversation with an advertising agency about CPA targets.
In practice
Real-world examples.
Example
A small manufacturer hires a CPA firm to audit its accounts before applying for a $2,000,000 bank loan. The signed audit report gives the bank confidence in the numbers. The firm will also advise the company on whether it needs an audit each year.
Example
An online furniture retailer spends $30,000 in a month on advertising and gains 600 new customers. Its CPA is $50, which is well below the $120 gross profit from an average first order. This means each new customer pays back its acquisition cost on the first order.
Example
A software company runs two campaigns, one on search ads with a CPA of $80 and one on a partner newsletter with a CPA of $45. The marketing director moves budget toward the cheaper channel, while watching whether quality stays the same. Over the following quarter, the average quality of customers from each channel is tracked before further changes are made.
Formula
Calculation
Cost per acquisition = Total campaign cost / Number of acquisitions
A business spends $6,000 on an online advertising campaign that brings in 120 new customers. Check the result by multiplying back: 120 customers x $50 = $6,000.
CPA = $6,000 / 120 = $50 per customer.
If each customer generates $180 of gross profit, the campaign earns 120 x $180 = $21,600 of gross profit for a $6,000 spend, a return of $21,600 - $6,000 = $15,600.Case study
Seen in the real world.
Pinecrest Learning is an illustrative, fictional online tutoring company that spent $20,000 a month on advertising. Its marketing lead reported a CPA of $25 per sign-up and called the campaign a success. The marketing lead's bonus was linked to keeping CPA below $30.
The finance manager looked deeper and found that only 10% of sign-ups became paying students. The cost per paying customer was therefore $250, while a typical student generated about $180 in gross profit. She also calculated that the company had been losing about $14 on every paying student after allowing for tutor costs.
In this illustrative case the company redefined an acquisition as a paying student, rebuilt its targeting and cut the CPA for paying students to $120. The change turned a money-losing campaign into a profitable one, without increasing the budget. Marketing bonuses are now tied to the cost of a paying student.
Watch out
Common mistakes.
- Counting every sign-up or click as an acquisition when only paying customers create revenue.
- Comparing CPA across channels without allowing for differences in customer quality.
- Confusing the two meanings, such as assuming a CPA target in a marketing meeting refers to an accountant.
Questions
People also ask.
What is a good CPA?
One that is comfortably below the gross profit a customer generates, which varies by industry and business model. A common rule is to keep it well under the gross profit from the first order or under one third of lifetime profit.
How do I become a Certified Public Accountant?
You typically need required education, a passing score on the licensing exam and a period of supervised experience, with details set by the licensing authority.
Is cost per action the same as cost per acquisition?
In practice the terms are often used interchangeably, but cost per action can include events such as leads or downloads, so check the definition. Always write the definition into the agency agreement.
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