This post originally appeared on BumeBox.com
In my post on Facebook advertising strategies I showed you the important Cost Per Acquisition (CPA) equation.
In my post on Facebook advertising strategies I showed you the important Cost Per Acquisition (CPA) equation.
This calculation is absolutely vital for evaluating the success or failure of any campaign you use to acquire people, customers, subscribers, visitors, etc. But what if you want to predict the value of a campaign before it even starts so you can weigh your options against alternative strategies? Unless you are paying on a CPA basis (i.e. you know exactly how much an acquisition will cost) this equation does not work because it is only useful after you measure the acquisitions you gained from a given campaign.
It's hard to guess how future initiatives will perform. The good news is you can use historical conversion rates you already have (CR) and the cost per click you are willing to spend (CPC) to figure out approximately how much an acquisition will cost. It turns out that a relationship between CPC and CR is equivalent to expected Cost Per Acquisition.
I'll save you the proof, just be sure to use dollars for CPC and a decimal for CR. This CPA calculation is exact if you are looking at the cost you did pay for a visitor and the conversion rate you did observe. But this equation is more powerful when used as an approximation of CPA for future campaigns. By just looking at the cost you are willing to pay for a visitor and the conversion rate you might expect, you can instantly figure out how much a customer will cost. Then you can compare how much that customer will cost to the expected value of a customer from that channel to determine if that campaign is worth pursuing. To take it to the next level, you can compare expected CPA versus expected CPAs from alternative channels to determine your best source for customers. This works for any resource -- social networking, search advertising, affiliate marketing, even SEO -- because each initiative requires some sort of monetary output and results can be measured by new inbound clicks generated from that channel.
