Hi, I'm Jannes Ermers and from my role as SEA specialist I like to write about developments within our organization. Here we are discussing the CPA, or Cost Per Acquisition. This number describes how expensive a conversion was (such as a purchase or a lead).
As SEA marketers, we assess the performance of campaigns on a daily basis. Whether the results are good or bad, we continuously analyze them. Success is in the hands of the client: based on their goals, we set the most important KPIs.
Difference between metric and KPI
Many people confuse metrics and KPI. This can sometimes cause friction when two parties are working together and in the eyes of one party things are going very well, but in the eyes of the other party the objectives are not being achieved.The main difference between KPIs and metrics is that there are often only a few Key Performance Indicators. For example, revenue or the number of leads achieved. Metrics are many more and often tell the story behind the KPI. An example:
A company wants to increase its revenue in a profitable and scalable way. Then revenue and ROAS are two good KPIs. With revenue we can measure if we are growing and with ROAS we can assess if it is being done in a profitable way.
Good metrics for measuring revenue and ROAS include CPC, conversions and conversion rates. With CPC (the cost per click) we can judge whether the traffic we are buying might not be too expensive while with the number of conversions we can properly measure whether we are selling more. Conversion rate can also be an important metric to measure whether the traffic we are buying is converting.
What makes the difference between KPIs and metrics is that metrics are not an end in themselves. Say CPC goes up 50%, but ROAS stays the same, then profitability is still good. Either the number of sales goes down, but revenue goes up (for example, because people buy more products at the same time).
But then why is CPA a bad KPI?
Now that we know the difference between KPIs and metrics, we can also better understand why certain metrics should not actually be KPIs. Personally, as a SEA marketer, I find it important to use KPIs that I can compare over a period of time, and that is the first pitfall of CPA.
CPA is sensitive to inflation, which has been especially noticeable for advertisers on Google in recent years. But clicks are getting more and more expensive. This is not only because everything is getting more and more expensive, but other factors also come into play. Google specifically operates an auction system, which means that when more competitors are added, the price of a click simply goes up.
Another disadvantage of CPA is that every conversion is considered equal. As I see it, that's a sign that it's difficult to bring value through website tracking. Just think to yourself: not every conversion is equally valuable. We have noticed in recent years that there is a big move within Google Ads to drive campaigns with smart bidding strategies that focus on values rather than conversions.
So what is the solution?
If you were to ask me: get rid of CPA. See if you can find another interesting way to give dynamic value to your conversions. For example, consider working with a CRM system where you assess the leads you receive, and send that information back to Google. Consider adding something on the request page that allows you to measure value. For example, include a question in the request form where the user indicates on a scale of 1 to 10 how often they plan to use the product. Of course, you can continue to drive CPA, but in my experience, in many cases there are better ways to determine the successes of your campaign!
