Overcoming the Limitations of CAC, Using CPA for a Better Digital Marketing Strategy

Campaign and conversion metrics are the compass that guide the digital marketing strategies of businesses all over. Yet, in some cases metrics are simply ignored, or a few metrics are identified and followed blindly.

When it comes to evaluating a marketing plan, two key metrics, Customer Acquisition Cost (CAC) and Cost Per Acquisition (CPA), are often at the forefront of any campaign analysis. However, while both are crucial, relying solely on one or another can present certain challenges.

In this article, we'll take a closer look at CPA. We’ll explore a common problem with CAC and how it related to evaluating sales leads and marketing programs and we’ll discuss how CPA can help overcome it, leading to a more effective digital marketing strategy.

The Problem: CAC is too Narrowly Focused

CAC, or Customer Acquisition Cost, is a vital metric that calculates the total cost of acquiring a new paying customer. It includes costs such as advertising spend, sales team expenses, and any other costs directly linked to securing a sale. However, the problem with CAC lies in its narrow focus on paying customers.

Missed Opportunies: The Customer Journey

In many business scenarios, the journey from promising sales lead to customer is not immediate. It often involves several stages of nurturing, from initial awareness to consideration, before finally leading to a purchase.

By focusing solely on the total cost of acquiring the customer (or CAC), a businesses may overlook the importance of these preliminary stages, potentially missing out on opportunities to more optimally engage and nurture potential customers. This narrow focus can lead to an overemphasis on short-term sales at the expense of long-term customer relationships.

The Solution: Utilizing Cost Per Acquisition Data

This is where CPA, or Cost Per Acquisition really shines. Unlike CAC, CPA measures the cost of acquiring something that isn't necessarily a paying customer, such as registrations, trials, or leads. This broader focus allows businesses to account for and optimize the costs associated with these preliminary stages of the customer journey.

By tracking CPA in addition to CAC, businesses can gain a more comprehensive view of their marketing effectiveness. For example, if a digital campaign is generating a high number of leads (a low CPA) but few of these are converting into customers (a high CAC), this could indicate a need to improve lead nurturing efforts.

Results: A Truly Effective Marketing Campaign

A truly comprehensive view of marketing effectiveness takes into account not just these metrics, but also others such as Customer Lifetime Value (CLV), Return on Investment (ROI), and conversion rates at each stage of the funnel. It also considers qualitative factors like customer satisfaction and brand perception.

By looking at all these aspects, businesses can gain a holistic understanding of their marketing performance and make more informed decisions to optimize their strategies.

zeroing in: Acquiring New Paying Customers

So, how do we tie this all together into a more robust digital marketing strategy? We do so by harmonizing the use of CAC and CPA. This harmonization ensures we are not solely zeroing in on the end goal (acquiring paying customers). Instead, we can focus on understanding the path potential customers take through the entire sales funnel, and its effectiveness.

However, finding this equilibrium between the two isn't a walk in the park. It requires:

• Goal Setting: Start by establishing realistic targets for your digital marketing campaigns. What's your ideal CPA? How many new customers are you aiming to onboard each month? With clear goals, you can begin tracking your CAC and CPA to gauge your progress.

• Channel Selection: Remember, not all marketing channels deliver the same results. Some may be pricier than others, and some may be more effective at generating leads or customers. When allocating your budget, consider the cost and potential ROI of each channel.

• Campaign Optimization: Once you've started monitoring your CAC and CPA, it's time to fine-tune your campaigns. If your CPA is too high, consider tweaking your targeting or bidding strategy. If your CAC is too high, you may need to rethink your pricing or product offering.

• Metric Measurement: Beyond CAC and CPA, other metrics can help gauge the effectiveness of your digital marketing campaigns. These include lead conversion rate, customer lifetime value, and ROI. Tracking these metrics offers a more comprehensive view of your campaign's performance.

• Resource Allocation: A balanced approach to CAC and CPA paves the way for strategic resource allocation. For instance, if a business finds its CPA is low but CAC is high, it might be wise to invest more in lead nurturing efforts, such as email marketing or retargeting campaigns, to boost conversion rates.

• Audience Segmentation: Understanding both CAC and CPA can lead to more effective audience segmentation. Different audience segments may be at different stages of the customer journey. This insight can help businesses tailor their approach, whether that's focusing more on lead generation (optimizing CPA) or conversion (optimizing CAC).

Remember, understanding and applying the difference between CAC and CPA is not just a technical detail; it's a strategic decision that can significantly impact your marketing effectiveness and business profitability.

Ready to start optimizing your digital marketing strategy?

At Archer we're not just a digital marketing agency; we're your strategic partner in achieving your marketing goals and growing your business. If you aim to launch a better marketing campaign, are looking for coaching to help improve your sales efforts, or find yourself facing a unique branding challenges, we encourage you to reach out. Let Archer ATR and our team of industry experts, guide you on this journey to success.