It can be really difficult to come up with paid media KPIs and associated budgets.
The most important factor is understanding customer value and how many leads you need to generate a return for the customer.
This month’s Ask The PPC asks us to explore how we come up with CPAs and how to use them to create a campaign budget/strategy. Gally asks:
In PPC, is there a relationship between the actual value of the product/service and CPA?
If so, how can one use this insight when planning a campaign budget.
In short, what is a good CPA? lets take alook.
The relationship between customer value + cost per acquisition
All paid media campaigns run from the auction.
Depending on the competitiveness of the idea (search term or target audience), you may have to pay a premium or get discounts.
Different products and services have different auction prices.
For example, the legal industry has some of the most expensive CPCs, which are related to the cost of services.
The average personal injury case is worth about $5,000 to $6,000 to a company, so paying $200 to $400 per click can still generate a positive ROI.
If the conversion rate is good (35%-40%), then it is reasonable to expect a CPA of $600-$700 when spending $20k. Under this scenario, return on ad spend (return on ad spend) would be 8.34x.
This would be an all-star account.
Most conversion rates will be closer to 10%-25% (ie the sale/deal event).
Setting realistic expectations for CPA and ROAS directly affects the success of campaigns.
If there is not a budget to get enough clicks per day, the campaign will not be able to generate results or go out of the learning period.
Make sure you factor lifetime value into your CPA and ROI goals.
If you’re selling a $15 product that calls for a monthly subscription, make sure you consider the average customer’s age.
Annual customer value is $180 and allows for a higher CPA.
What is good CPA?
A good CPA (Cost Per Acquisition) will bring in customers at a profitable price while still being competitive enough to maintain the brand in high-value auctions.
The CPA needs to be high enough that the ad networks will still be able to bid enough to maintain the 65% top impression share for the page.
However, it must be low enough to maintain gross margins.
As you set your CPA, be sure to keep the following in mind:
- Do you trust your conversions?
- Are all conversions equal?
Depending on these answers, you’ll either use guided CPA/ROAS bidding or stick to the guide.
You will receive a potential CPA when you sign up for Smart Bidding. This number is based on your previous conversions and your previous CPA.
Although it can be a good starting point, it is often a low/high.
Make sure you set a CPA that you will be happy with and that will give the campaign room to grow.
The final takeaway
A good CPA allows the campaign to perform while enabling real-world ROI.
Customer value is critical in determining a good CPA and directly affects the campaign budget.
Do you have a question about PPC? Submit via this form or tweet me at @navahf using the hashtag #AskPPC. See you next month!
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