Top 10 Tactics and Tips To Reduce Cost Per Acquisition (CPA) For E-Commerce
No business can grow in today’s highly competitive market without continuous thorough analysis. E-Commerce is no exception to that. To ensure your eCommerce business's uninterrupted growth and to be able to evaluate its marketing performance, you have to conduct regular analysis using effective metrics.
The Cost Per Acquisition (CPA) is one of the most important metrics when it comes to measuring the marketing performance of your eCommerce business. Cost Per Acquisition refers to the marketing costs that your business incurs to make a prospect take an action that leads to conversion.
This is a little different from Customer Acquisition Cost (CAC), which includes, in addition to the marketing costs, other types of costs for acquiring new customers, such as salaries, agency costs…etc. To demonstrate, CAC is about actual paying customers, while CPA is about potential paying prospects. In other words, we can say that CPA is a part of the broader metric CPC. Accordingly, lowering Cost Per Acquisition is as important as lowering Customer Acquisition Cost.
In this article, we are going to focus on the Cost Per Acquisition (CPA) metric. Specifically, we are going to walk you through some of the most effective tips, tactics, and strategies to reduce the Cost Per Acquisition for your eCommerce business.
Table of content:
- What is the cost per acquisition? And why is it important to reduce it?
- Tactics to reduce the cost per acquisition for your eCommerce business:
- Carefully identify your target audience.
- Invest in customer retention.
- Reduce cart abandonment rate.
- Optimize your landing page.
- Evaluate the performance of your ads.
- Improve the mobile experience.
- Conduct a keyword evaluation.
- Optimize your quality score.
- Do not underestimate the power of emails.
- Leverage customer data.
What Is The Cost Per Acquisition? And Why Is It Important To Reduce It?
As we mentioned in the introduction of this article, the Cost Per Acquisition (CPA) is a marketing metric that refers to all the marketing costs that get a prospect to take an action leading to conversion.
However, what you should understand here is that when we say the word “acquisition” or “conversion”, we do not necessarily mean sale. In this context, an acquisition or a conversion can refer to whatever it is that achieves your goals. It can be a click, a download, an install, a sign-up to a newsletter…etc.
It is calculated using the following formula:
CPA = Marketing Costs (or Campaign Costs) / The Number Of New Acquisitions (or Conversions)
After calculating your CPA, to understand whether it is good or bad for your business, you will need to consider several other factors such as Customer Lifetime Value (CLV), the nature of your industry, Repeat Purchase Rate, Churn Rate, and others.
By now, it should be obvious that the more your Cost Per Acquisition is lower, the better it is for your business. Therefore, lowering your CPA should be one of your business’s top priorities.
To better illustrate, reducing Cost Per Acquisition will:
- Increase your return on investment (ROI) within a relatively short period of time.
- Contribute to conversion rate optimization.
- Allow you to make a better allocation for your marketing budget and optimize your marketing strategies.
- Optimize your return on ad spend (ROAS).
- Lower Customer Acquisition Cost.
- Boost your eCommerce business’s profits and revenues.
Now, if you don’t want to miss all these benefits, keep reading this article to know how you can effectively reduce the Cost Per Acquisition (CPA) for your eCommerce store.
10 Tactics To Reduce The Cost Per Acquisition (CPA) For Your E-Commerce Business
Minimizing your Cost Per Acquisition can have a positive impact on different aspects of your eCommerce business; therefore, you should dedicate the time, effort, and resources needed to formulate concrete plans for this. Here are a few tactics that will facilitate this process.
Carefully identify your target audience
One of the first ways to reduce your cost per acquisition is to make sure that you are not marketing to the wrong audience because marketing to people who are not interested in what you’re selling is a complete waste of money. In other words, implementing proper customer segmentation is crucial to well allocate your marketing budget.
For example, imagine that you segment your target audience into three groups:
- Group 1: People who already know about you and are interested in your brand.
- Group 2: People who do not know you but are facing problems that you can solve.
- Group 3: People whose problems cannot be solved by your products or services.
Doesn’t this segmentation give you a better perspective on how to allocate your marketing budget?
What makes sense in the previous example is to. First, allocate the bigger part of your marketing budget to the second group, which might need more effort to reach and convince. Second, allocate a smaller part of your budget to the first group, which is already aware of you but just needs a little push to buy from you. Third, do not spend any money on the third group, which is irrelevant to your brand.
This tactic will help you make better marketing spending decisions; and hence, reduce cost per acquisition.
Moreover, targeting customers based on location is as important as targeting them based on demographics and interests. This is called geo-targeting. Do not get tempted by the idea of targeting as many locations as possible because this is too broad and will include uninterested audiences.
Converted.in offers you a great marketing automation tool that will conduct your target segmentation for you.
Invest in customer retention
We all know that retaining customers is always less costly than acquiring new ones. According to studies, 82% of businesses believe that customer retention costs less than customer acquisition. Therefore, you should invest in it without hesitation.
There are several ways you can increase customer retention rate for your eCommerce business:
- Loyalty Programs: They are always a great strategy to differentiate your eCommerce business from competitors and make your customers feel special and valued. E-Commerce loyalty programs usually lead to decreased churn rate; and hence, a higher customer retention rate.
Check this article to learn how to create the best eCommerce loyalty program.
- Personalization: It is extremely important, especially when it comes to advertising. Personalized ads will go hand in hand with your targeting efforts to ensure reasonable spending of your marketing budget.
Don’t worry; we got you covered. The automation tool offered by Converted.in will create, customize, launch, and automate your personalized ads, SMS, and email marketing campaigns.
Reduce your cart abandonment rate
Cart abandonment is one of the biggest problems that eCommerce businesses are facing every day. It is an issue that can lead to an increase in your cost per acquisition; therefore, you have to work on reducing your cart abandonment rate.
There are several ways through which you can reduce your cart abandonment rate; and hence, reduce your cost per acquisition:
- Improve your checkout process. For example, this can be done by making sure that the checkout process is as simple as it can be, by not adding any unexpected fees, and by not excessively using upselling.
- Retarget customers who abandoned their carts. Retargeting, or remarketing, is a great way to pull your customers back into the funnel. You can retarget your customers here through, for example, abandoned cart emails.
Read this article to know the reasons why customers abandon their shopping carts and how to solve them.
Optimize your landing page
Think of your landing page as the first impression a prospect gets about your eCommerce brand after they click on a link in your ad. I am sure you don’t want this first impression to be a bad one; therefore, you should always work on optimizing your landing page.
Tips for optimizing your landing page:
- Include all critical elements of an effective landing page, such as headline, sub-headlines, a brief description of the offer, images, a
- form to capture customer data, testimonials…etc.
- Make sure that the form you add to collect customer data is not too long and only asks for the information that you need.
- Choose your Call-To-Action (CTA) carefully.
- Match the headline of the landing page to its corresponding CTA.
- Keep it simple and to the point.
- Emphasize your offer’s value by addressing a specific problem and explaining how your products or services can help solve this problem.
- Use A/B testing and run two versions of your landing pages with only one different variable between them. Evaluate your results and leverage them for optimization.
Evaluate the performance of your ads
To make sure that you are on the right track and that your ads are optimizing your cost per acquisition, you have to evaluate them regularly.
Evaluating your ads will show you which campaigns are performing well and which are just not cutting it anymore. This way, you can temporarily or permanently stop unprofitable campaigns and redirect their budget to more profitable ones, which will greatly lower your cost per acquisition.
Improve the mobile experience
Mobile commerce, also known as m-commerce, has a market share of 73% of the total eCommerce market (Zippia, 2022). It is not something that you want to ignore if you are planning on minimizing your cost per acquisition.
Optimizing your ads, website, and landing pages to mobile devices ensures a better and more seamless shopping experience for your customers as well as for prospects.
Conduct a keyword evaluation
Keywords are the core of paid search campaigns; accordingly, their optimization is essential for optimizing your cost per acquisition. For that reason, you should regularly review your search terms reports.
In other words, reviewing your search terms reports can help you identify which keywords are relevant, triggering your ads and driving traffic, and which keywords are failing to achieve your marketing objectives.
Tips for optimizing your keywords; and as result, optimizing Cost-Per-Click and Cost Per Acquisition (CPA):
- Check your reports for search terms that you might have missed and add them to your targeted keywords list.
- Focus on long-tail keywords, which refer to longer, more specific keywords that are often used by customers or prospects ready to make a purchase.
- Make sure you update your negative keywords regularly to avoid unprofitable clicks. Negative keywords are important because they let you exclude search terms from your campaigns and help you focus on only the keywords that matter to your customers.
- Remove keywords that are not aligned with your marketing objectives.
Optimize your quality score
Quality score is a metric created by Google to measure the quality and relevance of your ads, keywords, and landing pages. Based on that, Google determines the cost per acquisition (CPA). The higher your quality score is, the more relevant your ads are, and the lower your CPA is.
Some people even argue that optimizing for quality score (QS) is the same as optimizing for cost per acquisition (CPA).
Tips to optimize Quality Score (QS); and hence, reduce Cost Per Acquisition (CPA):
- Write better ad copy.
- Use ad extensions, which can contain links to specific pages on your eCommerce website.
- Use branded keywords (ex: the brand’s name), which tend to have high click-through rates and conversion rates.
- Use single keyword ad groups (SKAG), which refer to ad groups in Google Ads that have only one keyword in them. This is an effective way to ensure that each ad group is targeting the most relevant search terms and keywords.
Do not underestimate the power of emails
Research shows that emails have the lowest cost-per-acquisition rates compared to other marketing channels. This highlights the pivotal role of email marketing in your plan to reduce your cost per acquisition. To illustrate better, email marketing is an affordable marketing strategy to acquire new customers.
What you should do here is work on increasing your mailing list. This can be a natural result of your landing page optimization. Optimized landing pages that ask visitors for their email addresses are an extremely effective tactic to increase the number of contacts on your email list.
Moreover, make sure that you automate your marketing campaigns to save yourself a lot of effort and reap more benefits. This is also something that Converted.In can do that for you.
Leverage customer data
The amount of data that you can gather today about your customers is huge and it would be a big waste not to leverage it to reduce your cost per acquisition.
For example, you can take advantage of all the data you have about the interests, preferences, and buying history of your customers to understand their buying motivations and design your ads and ad copy accordingly.
You can also use what you know about your customers from this data to tap into their emotional triggers and leverage creative marketing strategies such as FOMO marketing.
All this will increase conversions, which will naturally lower the cost per acquisition. This is another thing that Converted.in can help you with because the marketing tools that it offers can gather all your scattered customer data into one place, like a hub.
Reducing your cost per acquisition is essential for the growth of your eCommerce business. A low cost per acquisition is an indicator of your great marketing performance and a forecast of your increasing revenues.
In this article, we have given you the best tactics and tips to minimize your cost per acquisition, and we have also introduced you to a great marketing automation tool that will make the implementation of these tactics much easier.