Did you know that an optimized Cost Per Acquisition (CPA) in Google Ads can slash your marketing expenses by up to 50%?
In theory, Google Ads sounds like a pretty hands-off marketing tool.
You just set your budget and let your ad campaign roll. Google does all the work for you, right?
In reality, if you want to make the most of Google Ads — like any marketing strategy — you need to monitor the performance of your campaigns and make sure they’re delivering the results you’re looking for.
Let me ask you a question: When was the last time you calculated your cost per acquisition (CPA) for your Google Ads campaign?
If your answer is, “Never” or, “I don’t know what that means,” you’re in the right place. Optimizing your Cost Per Acquisition (CPA) is a critical element in leveraging Google Ads for effective marketing. Let me break down how to calculate cost per acquisition and why you should be tracking this metric in your Google Ads strategy.
View this post on Instagram
Defining Cost Per Acquisition (CPA) in Google Ads Context
In a nutshell, cost per acquisition (CPA) is a marketing metric that measures the amount of money your business spends on Google Ads for every new customer you actually land. In my opinion, figuring out your cost per acquisition is a long-term business strategy that should be shaping your marketing decisions.
If your CPA is relatively low, you’ll want to keep doing what you’re doing — your Google Ads are performing well, and you aren’t spending too much money to land new customers. But if your CPA is high, you’re wasting money on an ad strategy that isn’t actually working. A high CPA is a great indicator that something needs to change, or you’ll just continue pouring your marketing budget down the drain.
Now, you should understand the difference between cost per acquisition and similar figures, like cost per lead and cost per click.
Imagine your CPA is $100, and each customer acquired brings in $300. This means your net profit per customer is $200, highlighting the efficiency of your Google Ads strategy.
Cost per acquisition only pertains to landing actual customers. Meanwhile, cost per lead is the amount you pay for everyone who fills out your contact form, while cost per click is simply the amount Google charges you every time someone clicks on your ad.
These other metrics are also valuable, but cost per acquisition is the main figure you want to focus on. Of course, you need to get leads before you can land sales. But if you’re paying too much for actual conversions, you’re likely wasting money on lead generation as well.
Calculating CPA for Google Ads
You can calculate your cost per acquisition for each Google Ad campaign using a pretty simple formula. Here’s the process I walk business owners through to figure out their CPA.
1. Document All Your Leads Over a Specific Time
Before you can calculate conversions, you need to know your leads. As a refresher, leads are people who clicked on an ad and showed some sort of interest in your business. They didn’t necessarily make a purchase or even reach out to your company directly, but they’re in a great position to become paying customers down the line.
I like putting all my leads in a spreadsheet so I can easily organize my data. You can also let Google Ads do the work for you by downloading your leads as a CSV file. Just log into your Google Ads account, click the Assets drop-down menu, click Lead form, and then select the file type you want to download.
Whether you choose to download a spreadsheet or make your own, you’ll want to list out all the leads your Google Ads campaign has generated over a specific time. If your campaign is relatively new, just list all of your leads. If it’s been running for a few years, you may want to look at the past quarter or six months instead.
2. Narrow Your List to Actual Conversions
Your next step is to compare your list of leads to a list of actual paying customers. How many of those leads made a purchase? This process will allow you to see how much revenue you’re actually making from your Google Ads campaign.
Google Ads offers a few different ways to track conversions, depending on your business type and what you consider a conversion (i.e., phone calls vs. website purchases vs. offline conversions). I like to narrow my conversions to interactions that actually made me money.
If you’re using a spreadsheet, create a column next to your leads to list all of your conversions for that same period.
3. Divide Leads by Conversions
Now it’s time to do a little bit of math. You’ll want to determine how many leads it takes, on average, to land one conversion. This figure will help you understand how much it costs to convert just one customer.
For example, let’s say you had 24 leads in your designated time period, and three of those leads converted to customers. Dividing 24 by three gives you eight, which means that it takes eight leads to land one sale.
4. Determine Total Cost Per Acquisition
Your cost per acquisition (CPA) isn’t just the amount of money you spend converting the customer. It also includes the money you spent on the leads that didn’t convert.
To determine your total cost per acquisition, multiply your cost per lead by the number of leads it takes you to land one conversion. For example, if my average cost per lead is $100, and I land one sale for every eight leads, then my cost per acquisition would be $800. I have to spend $800 on Google Ads to land one customer.
Analyzing Your CPA Figure
So what does your cost per acquisition figure actually mean for your business? How do you know if your figure is too high or low?
I like to compare my CPA to the profit I get per acquisition. If it costs me $800 to land a customer, and they only bring in $100 in revenue, I’m essentially throwing $700 into the void. Something needs to change.
Meanwhile, if I get an average revenue of $800 per customer and I spend $800 on each acquisition, then I’m barely breaking even.
The goal is to reduce your customer acquisition cost to a level where you’re continually gaining more profit per customer than you spend to land the sale.
Tips To Improve Your Cost Per Acquisition
So your CPA isn’t where you want it to be — what gives? There could be a few factors at play. Like all marketing strategies, Google Ads requires some fine-tuning to be profitable. Consider the following tips to lower your cost per acquisition and boost your revenue.
Enhance Your Ad Copy
The most straightforward way to improve your CPA is to fix your ads. With Google Ads, you’re paying a set rate for every person who clicks on the ad. So you want to make sure that your ads:
- Attract the right target audience
- Don’t mislead customers
- Present a compelling offer
You don’t want to attract people to click on your ads who would never actually make a purchase. But at the same time, you want your ads to be engaging enough to attract people who wouldn’t initially be interested in your product or service but ultimately gain the information they need to convert.
I always recommend A/B testing when trying to perfect ad copy. Make two versions of the same ad, then track their performance over a few weeks. Get rid of the underperforming ad and fine-tune the one that provides the best ROI.
Improve Your Landing Pages
If your leads are high, but your conversions are low, you may need to adjust your landing pages. Your Google Ads landing pages should:
- Clearly explain the value of the offer
- Pique your leads’ interest
- Directly relate to and expand upon the ad copy
You don’t want leads to reach the landing page and find that your offer 1) doesn’t mesh with the ad they clicked on or 2) doesn’t meet their needs. Make sure your landing pages are compelling, engaging, and accurate to drive the most conversions.
I like putting videos on landing pages that give leads a closer look at the product or service they’re exploring. I also recommend leaving external links out of landing pages; this way, your leads will only have the option to keep moving through the funnel if they want to buy the product or service.
Again, A/B testing can be really helpful here.
Conduct Market Research
If you’re continually losing hundreds of dollars a month on Google Ads, and your cost per acquisition simply isn’t cutting it, it’s time to go back to the drawing board. Spend time diving into your target audience and the types of offers they find compelling. Then, make sure your ads accurately reflect their wants and needs for your type of products or services.
Is your cost per acquisition (CPA) where it should be? Or does something need to change?
Knowing how to calculate your CPA is the first step in tailoring your Google Ads to create the best results for your marketing strategy. Never think of Google Ads as a set-it-and-forget-it campaign; instead, do the work (or hire someone else to do the work) to make sure they’re performing at the highest level.