What is a CPA and Why is it Important?

Pay-per-click advertising; a field riddled with pesky acronyms. So riddled, in fact, that the name itself is an acronym – PPC! Navigating such a nightmarish landscape of capitalized letters can take a while to get used to, particularly to people starting out in paid media or a layperson getting to grips with their agency’s reporting. One of the most important acronyms in PPC is ‘CPA’. Let’s dive into what exactly a CPA is and how it can impact your account.

When advertising, your average CPA, or cost per acquisition, is the average advertising cost it takes to generate one conversion; whether that be a sale, a lead, a phone call, or whatever your business deems a valuable event.

This is an important statistic because it provides a solid indicator of the ROI your advertising efforts are likely to generate as well as the growth your business can expect as you scale your ad spend.

For example, if your average CPA for your business’s lead generation is £30 and the value of one lead is £60, your return on ad spend is 2 (ie. £60/£30 = 2).

How to Calculate Average CPA

Numbers are an advertiser’s best friend, but sometimes we forget that not everyone loves maths as much as we do. So let’s dive into exactly what makes a CPA, how to calculate it, and how to improve it moving forwards.

There are two key elements to a CPA: average cost per click or ‘CPC’ (oh look, more acronyms), and your average conversion rate.

The equation for calculating a CPA is: CPC/conversion rate% = CPA

Using the below real-world example, the CPC is £0.91 and the conversion rate is 1.19%. So the average CPA (or cost/conv) is £0.91 / 1.19%. = £76.45.

How to Reduce your Average CPA

It’s all well and good knowing what your CPA is, any fool can solve an equation if it’s given to them, but since you’re here reading this article, you’re definitely not a fool. So let’s go through some practical tips you can implement to reduce the average CPA in your PPC account(s) to let them shine and drive as high a return as possible.

So, based on the above example, having a low CPA can be achieved in two different ways: by increasing your average conversion rate and by reducing your average CPC.

But better yet, there is a mystical way pro PPCers can achieve both of these things at once with one very simple (but slightly more expensive) technique. Let’s dive into all of these!

Increasing your Conversion Rate

Using smart bid strategies that focus on driving more conversions is a fantastic way to improve your conversion rate. Maximize conversions, target CPA, target ROAS, and maximize conversion value are all great tools and can work wonders over time to incrementally improve conversion rates across your account.

Making simple changes to your landing pages can help improve your conversion rate. There are thousands of articles out there with detailed explanations of high-converting landing pages, but here are some actionable basics you can do right now:

Ensure the content on your landing pages is relevant and to the point
There are clear CTAs on the landing page guiding the user to the action you want them to complete
Reduce the number of clicks required to complete your conversion action. For example, for eCommerce, consider using the product pages as a landing page, or for a lead-based website, consider having your form visible on the landing page so users don’t need to navigate a second page.
Use compelling imagery that nudges users towards your CTA – a common trick is to use pictures of people pointing at or looking towards your form or button. For example, Skai’s homepage has a clear image of a woman looking directly at the ‘Book a Meeting’ button.
Having clearly visible customer reviews is a must to build trust and show your users that you mean business
Utilizing ‘nudges’ – nudges are psychological tricks that nudge your users into completing actions, when utilized correctly they can be a game-changer. Read more about the power of nudges here.

Reducing your CPC

Your average CPC is dictated by your quality score and your bid, which then determines your ad rank. Without giving you a lesson in ad rank and quality score, here is the gist of what dictates your CPC in an ad auction: there is a three-way relationship between keywords, ad copy, and landing pages that determine how much you need to bid to win an ad auction. These factors come together to determine your average CPC.

Because of this relationship, it’s important that:

Your target keywords are included in your ad copy – this will improve your ad relevance, which Google likes. For example, if your target keyword is ‘Blue Shoes’, your ad’s Headline 1, should include the term ‘Blue Shoes’… it’s pretty self-explanatory.
Your target keywords are included on your landing page – this will improve your landing page relevance, which (shocker) Google likes. For example, if your target keyword is ‘Construction Services’, your landing page H1 should include ‘Construction Services’ Again, pretty simple!
Your ad copy includes a similar copy to your landing page – this factors into both your ad and landing page relevance. A very simple technique that I would recommend for this, is to lift 90 characters of copy from your landing page (make sure it’s relevant) and use it in one of your description lines.
When these three factors are brought together, it allows your target keywords to excel in quality score, thus improving their ad rank and reducing your average CPC.

Implementing a SKAG Structure

Enter the newest acronym, the single keyword ad group, or SKAG, is exactly what it sounds like. This is a fantastic way to segment your accounts to ensure you cover the three points mentioned above. When each ad group has its own set of ads that are specifically tailored to one target keyword, it generates a higher average quality score across the account.

This also gives your account an unrivalled level of granularity, allowing you to make optimization decisions at the ad group level based on individual keyword performance at a glance.

Using the below example of an online hat store, this would mean we’d segment the ad groups like below to effectively manage performance at the ad group level.

Expanding Keywords and Narrowing Down – the secret sauce

This might be an odd analogy, but it illustrates the point well.

Imagine you’re a fisherman with just a small boat, a net, and a big lake filled with fish. These fish are not evenly spread out across the depths of the lake, they’re highly concentrated in some places and few and far between in others. Put yourself in the shoes of the fisherman, what would you do to maximize your long-term fish return? Would you just stay in one spot and cast your net out there all day? Or would you spend time moving between different spots, testing as much of the lake as possible to find where the fish are more highly concentrated?

Of course, you’d do the latter, and the same goes for PPC. Casting a wide net (ie. targeting a vast array of relevant keywords) and gauging where performance is strongest to then concentrate budget there, is a fantastic strategy.

Applying this Strategy

To illustrate this point, here is a real-world example from one of our accounts at Reflect Digital:

When we initially took over the account, the client targeted a total of 152 different keywords. Our first step was to conduct extensive keyword research to allow us to expand our reach.
We then implemented these additional keywords into a SKAG account structure for a total of 829 keyword targets.
As these keywords accrued data, we were then able to pause keywords that had low performance and increase budget allocation towards keywords with strong performance.
After three months, we had reduced the number of keywords in the account to 683 high-value targets.
This strategy not only showed us keywords with a lower average CPC than those we were initially targeting but allowed us to discover keywords that had a naturally higher conversion rate too. Overall, this allowed us to improve CPA by more than 100% within the first three months.

So there you have it, a guide on reducing your average CPA. Each element of this guide could be discussed in excruciating detail, but the basics are there and actionable. Our expert PPCers at Reflect Digital are masters of these tactics, but what’s stopping YOU from getting these changes implemented and your ROI skyrocketing? Nothing! So go for it.

This blog was originally published via PPC Hero on Wednesday 9th March 2022.