The CPA Trap & How To Avoid It

I guarantee I can reduce your cost-per-acquisition (CPA) on your SEM campaigns. How can I make such a bold claim? Simple: first, I create ad text that says “Get $1,000 free. Apply now!” Next, I create a landing page with a picture of a beautiful woman holding a pile of crisp bills and a simple, one-field form with the call to action “Enter Your Email Address to Get $1,000 now!”

target roi

ROI is a better ultimate target than CPA alone.

The pixel on the “thank you” page should register at least a 40% conversion rate and (depending on the keyword you buy) I reckon you should be able to pull in a CPA of no more than $2.

But wait, you say, “that CPA is worthless to me! I sell [insert your product or service here] — it’s a complete waste of time to get someone to sign up for something that I definitely can’t deliver and has nothing to do with my business model!”

And therein lies the problem of optimizing only to CPA. CPA is a good starting point for making your SEM is profitable, but if you stop there, you run the risk of winning the CPA battle but losing the ROI war. To be successful using CPA optimization, you have to dig deep into the actual ROI that happens after you “acquire” a customer. With that, here are my top tips on how to properly manage your CPA campaigns.

Not All Keywords Are Created Equal

Before I even dive into some of the math behind CPA optimization, let’s just start by applying common sense to keyword selection. If you are selling a subscription to an online marketing automation tool that costs $20/month but comes with a seven-day free trial, you’ll quickly learn that a $10 CPA on the term [free marketing automation help] is going to bring you less revenue than a $10 CPA on the term [enterprise marketing automation subscription].

In the case above, let’s say that the true revenue per “acquisition” from these two terms is $2.50 for the first, low-commercial-intent keyword, and $50 for the second, high-commercial-intent term. If you only bid to a CPA metric but your competitor is bidding to an ROI metric (calculating the actual revenue from these acquisitions), guess what happens? Your competitors “let” you outbid them on the first term while they outbid you on the second term. Translation: you get the crappy traffic that isn’t profitable, and they take all the good traffic that drives profit.

Your Ad Text & Landing Page Influence Your CPA & Your ROI

In the opening to this column, I created a ridiculous scenario where I drove very low CPAs with completely irrelevant but highly enticing ad text and landing pages. This was an extreme example for sure, but how many times have you made changes to your ad text that increase your click-through rate (CTR), but lower the quality of the type of visitor you are bringing to your landing page?

For example, emphasizing a free trial in ad text will almost always improve CTR; but, if you don’t analyze whether these free trials actually convert to sales, you might end up lowering your ROI.

The same is true for landing pages. A common debate amongst marketing teams involves the number of fields on a landing page form. The conventional wisdom is that fewer fields increases conversion rates and decreases your CPA. But every time you remove a field, you decrease your ability to segment converted users with targeted marketing messages and sales pitches, which can lead to a decline in profit.

Integrate With Offline Funnels

Many businesses generate leads via SEM but convert these leads into sales through offline channels, such as an inside sales team or business development team. Frequently, this means integrating your SEM campaigns with a phone tracking system, a marketing automation program, and a CRM program like Salesforce. This is often a tedious, tech-heavy process, but it’s an essential one. The only way to truly understand the variability of profit from different keywords with the same CPA is to follow the lead through the entire sales process.

Even if you aren’t a B2B company, consider tracking the lifetime value (LTV) of your customers back to your keywords. For example, if you sell dog food via a monthly subscription service, you may find that certain keywords drive users who continue their subscription for months, whereas others leave you with customers who cancel almost instantly (imagine the LTV differences between the keyword “free dog food sample” and “monthly dog food delivery online”).

Get As Granular As You Can

As with all online marketing, information asymmetry, the ability to have more information than your competitors is a crucial advantage that is often the difference between a massively profitable SEM campaign and a shuttering of the SEM department.

I’ve already talked about measuring ROI at a keyword level, ad text level, landing page level and integrating your CPA tracking with any offline sales information or LTV metrics you can access. Beyond these tactics, however, there are tons of other opportunities to expand your information asymmetry.

Do you see different ROI by device? By search partner? By time of day or day of week? By geography? By search engine? If you capture all of this data and are able to integrate it with your cost and revenue information, you become a “big data” machine (pardon the buzzword).

What Does It All Mean? CPA Is Just The Beginning

Of course, to quote one of my marketing mentors, it’s always important to “not let the perfect get in the way of the good” — so I am by no means suggesting that you go out and buy a mainframe computer and start crunching every piece of data you can. What I can say with certainty though is this: if you are only measuring CPA without any regard to ROI or LTV, you are not doing enough.

You will end up being outflanked by competitors who understand that some keywords produce good CPA and bad ROI while other keywords produce bad CPA and great ROI. You’ll be scratching your head, wondering why Competitor A can continue to spend so much money on that crappy high CPA keyword while building a mountain of cash on that very keyword.

CPA is better than nothing. CPA is a great place to start measuring your performance. But CPA is also a trap. If you don’t connect your CPA to ROI, you’ll fall into that trap. $1,000 of free cash, anyone?

Opinions expressed in the article are those of the guest author and not necessarily Search Engine Land.

Related Topics: Channel: SEM | Google: AdWords | Paid Search Column

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About The Author: is founder and CEO of 3Q Digital (formerly PPC Associates), a position he has held since the Company's inception in 2008. Prior to 3Q Digital, he held senior marketing roles at several Internet companies, including Rentals.com (2000-2001), FindLaw (2001-2004), Adteractive (2004-2006), and Mercantila (2007-2008). David currently serves on advisory boards for several companies, including Marin Software, MediaBoost, Mediacause, and a stealth travel start-up.

Connect with the author via: Email | Twitter | Google+ | LinkedIn



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  • davidquaid

    Excellent Post David, Hubspot would do well to take note!

  • Keith James

    Great article. I work with a lot of small businesses and they basically want me to write one copy and run it forever. Of course I would never do that. The key to paid acquisition is testing.
    CTR is meaningless unless it also converts. Too many marketers choose to add a percentage to manage an ad campaign. We’ve always used a flat rate with at least a 6 month commitment. This strategy allows us to better utilize the budget by creating more landing pages and constantly adjusting the offer. If you charge a client a flat 30% management fee, your goals just don’t align. There is no incentive to spend time and money on offers and copy.

  • Alan Mitchell

    Some excellent points. I agree that ROI is often a much better measurement of true value than CPA, although for products or services which have a lengthy research and consideration cycle (e.g. luxury real estate), sometimes attributing ROI to the correct sources can be challenging. In these cases, CPA is unfortunately often the best metric for optimisation.

    I think it’s also important to look beyond ROI, and consider more softer engagement metrics to help build up a better picture of how different keywords and ads are performing (http://www.calculatemarketing.com/blog/techniques/intelligent-analytics-for-intelligent-adwords-management/). Now that Google Analytics data can be imported into Google AdWords, it’s easier than ever to also take into consideration metrics such as page views and time on site when carrying out comparative analysis. Tagging up goals such as ‘view of the contact page’ can also help to measure which areas of the campaign are creating value.

    @keithjamesdesigns:disqus

    I agree, percentage of spend arrangements often provide the misaligned incentives for both client and agency: http://www.calculatemarketing.com/blog/techniques/economics-of-ppc-pricing-why-the-markup-model-is-flawed/. Flat rate models tend to work best from my experience.

 

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