Cost Per Acquisition: The Marketing Holy Grail

We have the fortune of working with clients in a lot of different industries, and each seems to have their own set of success metrics for their vertical.  Realizing that no two industries are the same, there are a handful of key digital metrics that we've determined can quickly identify how healthy a company's digital efforts are. Over the next several weeks, I'd like to highlight some of the metrics that are critical for any marketing professional to understand. And one of the most important of those metrics is cost per acquisition, or CPA.

Unlike a subjective stat such as Facebook likes, bounce rate, page views, or click through rate, CPA identifies exactly what dollar amount is being required to bring a new lead in the door.  And if a company has a good handle on its average customer value, the CPA metric can make or break a marketing campaign. 

Let's say you are a residential plumber. Let's then say that, in 2012, you had 67 customers and the average profit from these customers was $442. Thus, a new customer—on average—is worth $442. Over the course of the year, you spent $2,500 on online advertising in order to get 120 inquiries through your website. Of those 120 inquiries, 12 actually became clients (a 10% close rate). Thus, those 12 clients x $442 avg. profit = $5,304 in total profit. 

In this example, the CPA is calculated by taking the campaign cost ($2,500) and dividing it by the number of clients attributed to that campaign (12)—a $208 CPA. With the average customer being valued at $442, this campaign is a success and should be either continued or expanded.

This is ROI tracking in its purest form using one of the only mediums capable of this level of analysis. Are you using it? What's stopping you from getting started? 

This post is the first in a series on key digital metrics all marketing professionals should know. Watch for future posts in the weeks to come, or, send metrics you’d like to see featured to paul [@]