See simple formulas and methods for calculating the real acquisition cost of each campaign.
- [Instructor] To calculate the cost per acquisition, there are two formulas that are popular. The first one is to take the total cost, divide it by the number of conversions. The second one is to take the cost per click and divide that by the conversion rate. I prefer the first method since you can include other realistic costs in the equation quite easily. Let's do an example of this. An online retailer spends $65,000 on a campaign. He paid an agency $4,000 to set up the campaign and to help him with the copywriting.
He was able to attribute about 750 sales to the campaign. Since his total cost was $69,000, Since his total cost was $69,000, his cost per acquisition was about $92. Now the cost justification in this case could be that if he made a marginal profit of, let's say, $25 per unit, the gross profit of $18,750 was realized on the campaign. the gross profit of $18,750 was realized on the campaign. Now if the CPA was higher and no profit was realized on this sale, then one of the only ways in which the campaign cost can still be justified is perhaps, if the new clients will have a higher lifetime value due to a proven upsell, a cross sales strategy that will happen at a later stage.
Calculating CPA correctly is important because we need to make a realistic assessment on the viability of a PPC campaign. Let's face it, there are some products and services that can be sold very profitably through PPC marketing, and then there are others that will maybe breakeven regardless of your best efforts in optimization because that is usually due to high levels of competition and rising cost per clicks. Make this a part of your planning process and remember to rely on industry benchmark data.
- Understanding the difference between search and display advertising
- Mapping PPC marketing to the sales funnel
- Using marketing agencies and campaign specialists
- Creating a Bing Ads account
- Creating a Google AdWords account
- Granting access to third-party users
- Setting up a campaign in Bing Ads and Google AdWords
- Setting keyword match types
- Copywriting for PPC ads
- Improving the quality score of your ads across different networks
- Using goals and conversion tracking
- Handling typical problems in PPC advertising