Learn what CPA is, how to calculate it and how to take it into account for the growth of your business.

Learn what CPA is, how to calculate it and how to take it into account for the growth of your business.

Claudia Roca

Jun 25, 2022

Jun 25, 2022

Jun 25, 2022

Learn what CPA is, how to calculate it and how to take it into account for the growth of your business.
Learn what CPA is, how to calculate it and how to take it into account for the growth of your business.
Learn what CPA is, how to calculate it and how to take it into account for the growth of your business.

When we talk about CPA marketing meaning, we refer to the acquisition cost of a sale. That is, how much money we have to invest in marketing and advertising in order to capture a new sale.  It's calculated in a very simple way, we must divide the total number invested in marketing strategies by the amount of sales we have in a given period of time. 

For example, if I have an online clothing business and I invest 300 usd monthly in advertising and I sell 100 garments, my CPA is 3 usd. That is, I must invest 3 usd to sell one garment.  

It's common to confuse CPA with CAC. These two metrics are similar but they’re not exactly the same. 

When we talk about CAC we refer to the cost of acquisition per customer. In other words, we divide the investment we make in acquisition marketing by the number of new customers we acquire in a given period of time.  Of course, acquiring a new customer who may buy from our business more than once is not the same as making a sale. 

To simplify, we can say that the CAC is used more to ask for the performance of marketing strategies in recurring businesses such as SAAS, since in these cases our main objective is to attract new customers who will pay a monthly fee. On the other hand, in e-commerce, it's more common to use metrics such as CPA, since the same customer does not buy from us every month (such as the case of clothing, for example). 

Difference between CPA and CAC

Variations of CPA over time

Now that we're clear about the difference between CAC and CPA, we have to talk about the variations that may exist among them over time. 

It's very common to think that these metrics are stable. However, this is a mistake. In reality, they are very unstable and can skyrocket from one moment to the next. That's why it's very important to always have them in sight in order to be able to take the necessary measures in case the situation gets a little out of control. 

Normally, when businesses are just starting out they tend to have a low CPA. They move in a small market circle, word of mouth works very well and this means they don't need too much investment to get new sales or customers. 

The problem appears when we press the accelerator. In most cases, when businesses start investing more money in acquisition marketing strategies because they want to grow and scale the business, they find that CPA levels skyrocket. 

There's a fairly simple explanation for this and it is that, in this instance, they run into competitors. It's logical that the more people there are bidding to try to capture the same type of customer, the more expensive the CPA becomes. At the same time, it's very common that the diffusion channels that have been used in the first phase start to become saturated, that is, in certain channels you have already shown your ad to all your potential customers and then the CPA becomes more expensive or you even need to go out and explore and invest in new channels. 

Don't panic, going through this stage is quite normal. The key is to always keep your CPA in mind to be able to make decisions in time. Of course, the business models that have less profit margin per sale are the ones that have to be even more careful with the CPA values because if they shoot up too much, they can get in trouble. The business models that have a wider profit margin have more room to maneuver.

Where are the growth limits?

However, we must not lose sight of the fact that in all businesses there is a glass ceiling. That is to say, there is a growth limit depending on the size of the market in each case. 

The most normal thing is that after this stage of growth in which the CPA becomes more expensive, there is a stage in which it stabilizes, but our growth also comes to a standstill. If we were to continue investing, the CPA would become so expensive that we would stop making money and this has to do with the size of the market. 

The size of the market will at some point cause you to reach a point of turnover and a rate of growth that makes it so that you can't continue to grow with a controlled CPA

To deal with this, it's very important that we take into account what our market is, its size and that we test strategies in different channels that allow us to optimize the CPA more and more. 

Of course, there is a limit and any company or business that wants to continue growing will have to face new challenges, such as trying to enter new markets.

Are you dizzy with all this content? We hope not and we hope it really is useful for you to keep thinking about new strategies for your business. 

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We'll say goodbye for now and we'll meet again in the next post, see you soon!