Data Snacks Video — Cost Per Acquisition (CPA)

Jeremy Horowitz, Director of Marketing at Daasity, explains the importance of cost per acquisition and walks you through how to calculate it. Cost per acquisition is an important eCommerce KPI to track marketing performance, and understanding it is necessary to grow your brand.

Cost Per Acquisition Is a Essential eCommerce KPI

Cost per acquisition is an essential eCommerce KPI to track to understand how your marketing budget is performing, where your profitability is likely going to be, and how quickly you can scale up your brand.

If your cost per acquisition is dropping, and you can afford to spend more money, that's a great opportunity to go in and grow your brand faster.

How to Calculate Cost Per Acquisition 

Cost per acquisition is calculated by dividing total/variable marketing spend (over a certain time period) by the number of new customers who have placed an order at your store (in the same time period). Here's a visual:

graphic of the cost per acquisition formula (variable marketing cost divided by new customers acquired)
When calculating cost per acquisition and other metrics, such as cost per order, it is crucial to use data from one time period.

For example, if in September 2021, your variable marketing cost is $22,000, and you acquire 1800 new customers, your cost per acquisition would be $12.22 in that month.

Why Cost Per Acquisition Is Crucial

Cost per acquisition allows an eCommerce brand to get really granular on how expensive it is to actually acquire a new customer: from your dedicated marketing budget, how much can you afford to continue to drive growth from your brand?

As you continue to grow your business, and as customers get more expensive to acquire, you should expect your cost per acquisitions to rise.

Track Cost Per Acquisition Over Time 

Make sure that you check your cost per acquisition at the same time every week. There are many factors that will affect your brand's cost per acquisition that are vital to understand.

By maintaining a consistent cadence on metric tracking, you'll start to notice patterns around when metrics may change and the factors that may cause those changes. Your cost per acquisition may predictably change by month or season. If it is lower in the summer, for example, that's a great time to spend more money to acquire new customers, work to retain them, and set them up for your best BFCM or holiday deals.

For even more information about cost per acquisition (and related metrics), head over here.