Cost per Action (CPA) is a key performance indicator in online marketing that indicates the average cost of a desired user action. Such an action, also known as a conversion, could be, for example, a purchase, a registration, a download or a contact enquiry.
This metric helps start-ups to assess the success of their marketing campaigns and to allocate advertising budgets efficiently. It plays a particularly important role in performance marketing, as costs can be directly compared with measurable results.
Which actions are measured in cost per action?
Which action counts as a conversion depends on the objectives of a marketing campaign.
Typical actions include:
- Purchasing a product: Customers buy a product or take out a subscription.
- Newsletter subscription: Anyone interested can sign up to receive regular updates.
- App installation: Users install an application.
- Enquiry: Prospective customers fill in a contact form.
- Registration: Anyone interested can create a user account or sign up for a service.
- Book a demo: Companies arrange an appointment for a product presentation.
It is important to decide, before the campaign begins, which activities are to be measured. This makes it easier to compare the results of different marketing initiatives.
How is the cost per action calculated?
The calculation is carried out by dividing the total advertising costs by the number of conversions achieved.
CPA = Total advertising costs ÷ Number of conversions
One example:
A B2B start-up invests 1,000 euros in an online advertising campaign. This generates 50 enquiries for a product demonstration.
The calculation is as follows:
€1,000 ÷ 50 enquiries = €20 per enquiry
The company therefore spent an average of 20 euros on each demo enquiry.
Whether this figure makes economic sense depends, amongst other things, on how many enquiries go on to become paying customers and what turnover this generates.
What is the difference between CPA, CPC and CAC?
In online marketing, there are various key performance indicators that companies can use to evaluate their advertising campaigns.
| Key figure | Meaning |
|---|---|
| CPA (cost per action) | Average cost per defined user action |
| CPC (Cost per Click) | Average cost per click on an advert |
| CAC (Customer Acquisition Costs) | Average marketing and sales costs for acquiring new customers |
The difference lies in which metric is being considered. Whilst CPC measures the cost per click, CPA measures the cost of a specific conversion.
CAC, on the other hand, takes into account all the relevant costs associated with acquiring new customers. As a result, it can be significantly higher than the cost of a single marketing campaign.
Why is this key figure important for start-ups?
Start-ups often have limited marketing budgets, particularly in the early stages of their business. It is therefore important to assess the costs of individual measures in a transparent manner.
The analysis helps with this:
- Linking marketing expenditure to tangible results
- Identifying successful advertising channels
- Comparing campaigns with one another
- To allocate budgets more effectively
- Assessing the cost-effectiveness of marketing initiatives
However, a low figure does not automatically mean that a campaign is profitable. The economic benefits derived from the actions taken are also a key factor.
You can find further practical advice in the innoWerft article on Optimising conversion and customer loyalty.
How can businesses reduce their cost per conversion?
Start-ups can take various steps to make their advertising campaigns more effective:
- Define the target audience: Target adverts at relevant individuals or organisations.
- Optimising adverts: Test different messages, images and formats.
- Improving landing pages: Make content easy to understand and reduce unnecessary barriers.
- Check conversion tracking: Ensure that the desired actions are recorded correctly.
- Evaluate campaigns regularly: Adjust budgets in a targeted manner based on the results.
However, one should not focus solely on low costs. The quality of the enquiries and the likelihood of a subsequent purchase are also crucial.
How can innoWerft help with this?
innoWerft supports founders in developing go-to-market strategies, defining relevant marketing metrics and evaluating different sales channels. Through coaching and feedback, start-ups can tailor their initiatives more effectively and further develop their growth strategies.
Frequently Asked Questions about Cost per Action
What does CPA mean in German?
The abbreviation stands for ‘Cost per Action’ and refers to the average advertising costs incurred for a specific user action.
What makes a good CPA?
What constitutes a good value depends on the sector, the business model and the action being measured. The key factor is whether the costs are in a commercially reasonable proportion to the expected benefits of the conversion.
Is Cost per Action a billing model?
The term can refer to both a marketing metric and a performance-based billing model. However, the cost per conversion can also be calculated for campaigns that are billed on a per-click or per-impression basis.
What is the difference between CPA and ROAS?
The cost per action shows the average cost of a particular conversion. The Return on Advertising Spend (ROAS), on the other hand, compares the revenue generated by advertising with the advertising expenditure.
innoWerft is an early-stage investor and accelerator based in Walldorf, supporting start-ups before or shortly after they are founded by providing capital, coaching and access to a network of investors and businesses to foster sustainable growth.
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