Free tool
CPA calculator
The short answer
Cost per acquisition is ad spend divided by conversions: $3,000 for 60 leads is a $50 CPA. Whether $50 is good depends on what a conversion is worth. The break-even CPA is sale value x gross margin x the share of conversions that become sales; above it, each conversion loses money on the first sale.
On this page 6 sections
Cost per acquisition
Profit before ad spend
100 for ecommerce orders; your lead-to-sale rate for leads
CPA
$50.00
Cost per closed sale
$167
Break-even CPA
$60.00
Headroom per conversion
$10.00
Each conversion costs $50.00 against a break-even of $60.00, so the campaign is profitable on the first sale. The break-even CPA is the most you could bid before it is not.
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The formulas
- CPA = ad spend / conversions.
- Cost per closed sale = CPA / close rate. For ecommerce orders the close rate is 100%, so it equals CPA.
- Break-even CPA = average sale value x gross margin x close rate. This is the profit one conversion produces before advertising.
- Headroom = break-even CPA - CPA.
Worked example
A landscaping firm spends $3,000 and gets 60 quote requests: a $50 CPA. It wins 30% of quotes, so each job costs $50 / 0.30 = $167 in advertising. The average job is $400 at a 50% margin, so a quote request is worth $400 x 0.5 x 0.3 = $60. The campaign clears $10 per lead on the first job, and repeat business is extra.
Getting CPA right
- Define the conversion. A CPA for form fills, a CPA for qualified leads and a CPA for closed sales are three different numbers. Google Ads Target CPA bidding optimises toward whatever you mark as the conversion, so if junk leads count, bidding will find more junk.
- Include calls. If a third of leads phone in, a CPA from forms alone looks 50% worse than it is. Call tracking closes the gap.
- Use margin, not revenue. Revenue-based break-even CPAs approve campaigns that lose money once the cost of the job is paid.
- Repeat customers raise what you can pay. For subscriptions and repeat purchase, compare CAC with lifetime value in the LTV to CAC calculator.
For ecommerce with ROAS targets, use the break-even ROAS calculator; for whole-campaign returns including fees and tools, the marketing ROI calculator.
Questions
- How do you calculate CPA?
- Divide total ad spend by the number of conversions in the same period. $3,000 of spend and 60 conversions is a CPA of $3,000 / 60 = $50.
- What is a good CPA?
- A good CPA is one below your break-even CPA: the gross profit a single conversion produces, calculated as sale value times margin times the share of conversions that become sales. Industry averages say little about your margin.
- Is CPA the same as CAC?
- Not quite. CPA usually means advertising cost per conversion in one channel, and the conversion may be a lead. CAC is total sales and marketing cost per new paying customer, across all channels.
Sources
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