CPA is the ‘Cost Per Action’ and this is a term that becomes relevant when you start paying for advertising.
If you use Google AdWords or Facebook Ads to try and drive more visitors to your website, then this is a form of PPC advertising. That stands for ‘Pay Per Click’ and it basically means that you’re paying a certain amount for each person who clicks on your ad and thereby paying a certain amount for each new visitor.
PPC tells you how much you are spending and allows you to tightly control that number. But it tells you nothing of the value that you’re getting in return. This will elevate your visits and that’s all – you want to elevate your sales.
This is where ‘CPA’ comes in and uses goal tracking to show you how much you are spending for each person to buy a product from you. If you use Google Analytics and combine that with AdWords, then you can literally see how many of the clicks you get from your ad campaign are resulting in sales and this in turn allows you to work out the average amount you pay for each new sale.
Meanwhile, a ‘CPL’ is a ‘Cost Per Lead’, which tells you how much you are paying for leads. A lead will often be considered a warm lead who subscribes to your mailing list – but you could also choose to count highly engaged visitors as your warm leads. To calculate a CPL in this way, you could look at your number of visitors and then compare this to the average page views per visit or the average time on site. That way, you can work out the percentage of your visitors who end up being engaged visitors and therefore leads.
Of course you can also calculate your CPA and CPL without using Google Analytics or AdSense. If you are paying an SEO company to help your site to climb the SERPs for example, then you can calculate your CPA by looking at the amount you’re spending on that marketing versus the number of sales and the amount of profit you are making. This is simply all your costs versus all of your profits.
Likewise, you can work this out if you sell through a mailing list by looking at how much you are paying for each lead who subscribes and then looking at the lifetime value of each subscribe. How many of them read your emails and how many of them buy your products?
How to Improve CPA and CPL
One way to improve your CPA and CPL is to target the right niche – one that isn’t too competitive so that you can reduce the cost of advertising in that industry. Another is to make sure that you have done everything you can to reduce your bounce rates, improve engagement and enhance conversion rates so that the people you are paying to bring to your site are actually likely to buy from you. You can also do this by increasing the value of the product you sell, so that you improve the profit for each sale or by tweaking and improving your sales page to enhance conversions.
Another trick is to use advertising that charges on a CPA basis. Facebook now offers this service and allows you to set up CPA ads for things like page likes and even sales of special offers. This way, you can agree to only pay when a click turns into a positive action – rather than wasting money on an ineffectual or poorly targeted campaign!
Oh and CPL is also improved by delivering an amazing product and excellent service of course! If people don’t enjoy the experience of shopping with you, they won’t do it again!
What to do With This Data
All this work is going to help you to calculate how much you are spending on the types of leads and customers you are aiming to bring to your site and how much you are earning from them.
If you pay for 100 clicks and each costs you $1 but you have a conversion rate of 1% and they pay $200, then your customer is worth $2 to you and you are only paying $1. If some customers tend to buy repeatedly, then your average value might be worth even more.
This then helps you to ensure that your final metric – your ROI – is high. Your ROI is your return on investment which tells you how much of the money you are spending on advertising, hosting and everything else you are getting back.
If your average customer is worth MORE to you than you are paying to bring them to your website, then you can rest assured that you will not lose money and you will continue to reliably bring in profit that will increase over time.
By working out your customer lifetime value, you can work out what your budget is for advertising spend and that way keep growing and scaling your business while minimizing risk. Meanwhile, you can continue to improve your conversion rates and organic traffic in order to make more sales and allow yourself to spend more on those adverts.
By tracking all of this data and looking at it in a synergistic and cohesive manner, you can predict exactly your earnings, you can identify where to invest your money and you can look at the failings that are damaging your profits and your engagement. It takes time to get a handle on all this data but once you manage it, you can take the guess work out of your internet marketing and turn it into a simple equation.
And the answer to that equation = success
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