What Is Cost Per Acquisition?
Cost per acquisition (often abbreviated as CPA) is an essential eCommerce KPI that shows you the total (average) cost to gain one new customer. It is an extremely important metric to track in order 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.
What Is an Acquisition?
Getting an acquisition usually refers to gaining a net new paying customer.
What Should My Cost Per Acquisition Be?
Your cost per acquisition will be dependent on a number of variables, such as what you sell and how many customers you have, and it will likely be cyclical. If you sell expensive products, such as high-end kitchenware or furniture, you may have a cost per acquisition well over a hundred dollars, but if you sell inexpensive products, such as food or beverages, it may be a fraction of that.
Something to keep in mind is that, depending on your AOV (and other metrics, such as repurchase rate), you may have some freedom to spend more to acquire customers if you know that you'll be able to generate strong profits over time (see LTV:CAC).
How to Calculate Cost Per Acquisition
To calculate cost per acquisition, divide your 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:
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.
CPA vs CAC
Although CPA and CAC are often used interchangeably, they are technically different metrics. Cost per acquisition refers to the marketing cost (usually the paid media cost) to acquire a new customer. Customer acquisition cost (CAC) refers to marketing costs and other costs such as marketing/eCommerce tools used, vendor cost, and team salary. Many eCommerce brands use these numbers interchangeably to represent the marketing costs associated with acquiring a new customer.
Customer acquisition cost is a component of the metric LTV:CAC ratio, which is the direct relationship between customer lifetime value and how much it costs you to acquire a customer.
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 (at Daasity, we have found that the most successful eCommerce brands work hard to maintain a schedule to check and analyze their metrics!). 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.