Paid media campaigns can be a powerful driver of business growth, but determining how much to allocate to acquire a customer, your Cost Per Acquisition (CPA), is essential for maintaining profitability. In this article, we’ll outline how to calculate a viable CPA for your business and share strategies to increase Customer Lifetime Value (CLV), ultimately enhancing your Return on Ad Spend (ROAS).

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First, we calculate an Optimal CPA

Understanding what CPA is sustainable for your business is the first step in managing your paid media budget. Here’s how to get started:

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Understand Your Profit Margins

Identify the profit margin for the product or service you’re promoting. For instance, if your product retails at £100 with a profit margin of 40%, you have £40 available to cover costs like marketing, overheads, and profits.

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Set Your CPA Threshold

Your ideal CPA will depend on factors such as profit margins, business objectives, and growth targets. For example, if you allocate £20 of your £40 margin to CPA, this leaves £20 for other operational expenses and profits. Some businesses are prepared to invest more in acquisition when they anticipate repeat purchases or ongoing subscriptions.

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Consider Conversion Rates

Review your sales funnel metrics, including conversion rates at each stage. If your campaign generates 1,000 clicks at £1 per click and achieves a 5% conversion rate, your CPA is £20 (£1,000 spent / 50 customers). By understanding these metrics, you can fine-tune your campaigns for better results.

But keep in mind, conversion rates don’t tell the whole story. While they are a good point of reference, metrics like cost per click and click to sale rate can vary based on the quality of the traffic source, and even the individual marketing asset such as the creative used. Ensuring you have strong conversion tracking to monitor these detailed metrics is important.

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Consider Boosting Customer Lifetime Value (CLV)

Higher CLV enables you to support a higher CPA, making your campaigns more competitive. Here’s how to improve CLV:

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Retain and Upsell to Customers

• Upselling and Cross-Selling: Recommend related products or services to increase order values.
• Loyalty Schemes: Introduce rewards for repeat customers, such as points, exclusive offers, or tiered discounts.
• Email Marketing Campaigns: Maintain engagement through personalised email communication to drive repeat purchases.

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Deliver Outstanding Customer Experiences

Happy customers are more likely to return and recommend your brand to others. Ensure your product or service consistently meets expectations and provide prompt support to resolve any issues.

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Diversify Your Offerings

Expanding your range of products or services to complement your core offerings can increase the overall value customers derive from your brand.

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Ensuring Maximum ROAS

Improving ROAS ensures your marketing spend delivers the best returns. Follow these tips:

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Fine-Tune Campaigns

• A/B Testing: Test different ad creatives, headlines, and calls-to-action to identify what works best.
• Refine Audience Targeting: Leverage data to focus on high-intent audiences most likely to convert.
• Continuous Optimisation: Regularly analyse campaign performance and reallocate budget to top-performing ads.

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Optimise Your Conversion Funnel

• Landing Page Improvements: Create highly persuasive landing pages with clear messaging, fast load speeds, and strong calls-to-action.
• Simplify Checkout Processes: Minimise obstacles in the purchasing journey to reduce drop-offs.

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Leverage Advanced Analytics

Utilise tools such as Google Analytics, Meta Ads Manager, and third-party platforms such as Hyros or TripleWhale to monitor campaign performance and uncover actionable insights. These insights will guide data-driven decisions for better results.

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In Conclusion

The amount you should spend on paid media campaigns hinges on understanding your unique business metrics, including CPA, profit margins, and CLV. By balancing these key factors and continuously refining your campaigns, you can achieve sustainable growth and stronger returns on your advertising investment. Remember, success isn’t just about acquiring customers, it’s about nurturing long-term relationships that maximise value.