While ecommerce might seem a low-cost way to reach huge audiences, nothing online is free, so understanding the difference of CAC vs CPA is vital for successful stores.
Everything online costs something, with advertising campaigns, lead generation, marketing efforts and even sales analysis all adding drag to the bottom line. The most successful stores aren’t always those with the best products or services, although that helps, but those with managers who understand the ecommerce landscape and extract the maximum value from their customer and sales data.
Using customer acquisition cost (CAC) and cost per acquisition (CPA) are just two key metrics that help establish the underlying health of an ecommerce store or business.
What is Customer Acquisition Cost (CAC) and How to Calculate it?
Self-explanatory it may be, but CAC is vital to understand how your business is growing. If it costs $100s to bring in $10-spending customers, your operation won’t last very long.
Calculating the customer acquisition cost is simple, it is the total spent on sales and marketing efforts to attract customers divided by the number of customers your business gained from those promotions.
It might sound simple, but with pay-per-click, dynamic advertising and potentially complex marketing costs, plus human resources, you need to keep a tight track on spending to deliver a useful CAC value.
CAC VS CPA: What is Cost Per Acquisition and how does it differ from Customer Acquisition Costs?
A slightly different metric, CPA is a shorter-term focused figure to establish the cost of new customers within a specific campaign. The math is simple too, the cost of the campaign divided by the number of new sign ups.
By establishing the CPA you gain insights into the cost to get your prospects or customers performing a specific action or achieving a particular outcome.
CAC VS CPA In what scenarios is CAC used as opposed to CPA?
At their simplest, the CAC is the strategic view of your marketing activity while the CPA is the tactical overview of one specific campaign.
CPA is also used to identify leads, not just paying customers, which is where CAC comes into play. The value of leads and lead generation are vital for growth, so early-stage ecommerce businesses can focus on CPA while broader-focused established stores can use CAC to track sales trends.
Used alongside other metrics like lifetime total value (LTV), and customer lifetime value they provide a rounded view of your business and marketing performance.
How do CAC VS CPA provide different insights into marketing effectiveness?
CAC helps retailers and marketers understand acquisition channels perform best for your current customers.That helps focus your budget on effective sales and marketing efforts that will deliver results.
CPA identifies the cost to win a customer, and as the business evolves you should see that value fall as you win though scales of economy and better tactics. By tracking these metrics among others, you gain a better understanding across marketing campaigns.
Factors that impact your CAC score
When using your CAC score to track marketing results, you need to pay attention to the various factors that can change the score, these include:
- The various marketing channels and costs across search, types of advertising, content marketing efforts and other efforts all impact CAC.
- Reaching out to different target audiences will impact the cost of advertising, with premium audiences costing more.
- Similarly, markets with great competition will see advertising prices soar for specific keywords and bids, especially for premium products or where you compete with major brands.
- The game goes for playing in particular industries or geographic regions, being smart with your marketing can reduce the cost of CAC.
Factors that impact your CPA score
The size of your budget is the primary factor in keeping your CPA score down. Beware that as budgets grow, your CPA could boom with them.
As with CAC, the choice of marketing effort will impact the CPA, traditional CPA advertising campaigns are often augmented with affiliate marketing or social media campaigns that add to the cost.
CAC VS CPA: can they be used together for a broader view?
With dozens of marketing metrics out there, it is unfair to ignore one over another. Each one reinforces or augments others, so it makes sense to use every tool at the marketers disposal to get the best possible picture.
Using tools like Kleene.ai can help you gather all the data at your disposal and make the best decisions through smart suggestions. If your current marketing tools don’t provide predictive analytics, our decision intelligence platform delivers advanced AI tools to deliver valuable insights.
CAC VS CPA: How to improve them
Marketing automation is fast taking over from traditional methods, and to compete your need to be using automation and AI tools. But marketing isn’t all about the robots. You can use customer retention strategies to reduce the cost of hunting for new customers.
And across the business, good customer support, product improvement and service value will all boost the money that customers spend, and improve loyalty.
Ultimately do not be a slave to the metrics, focus on your business, its offerings and what you do best to deliver the best products and service you can. Armed with that mindset, you can use the CAC and CPA metrics to deliver powerful analytics-led marketing to boost your metrics and see better sales results.
