CPA (Cost Per Action, cost of a target action) — a metric that shows the average cost of one target action completed by a user after clicking an ad.
This may be a registration, application, purchase, subscription, app installation, or any other predefined action.
In traffic arbitrage, CPA helps determine how much an acquired conversion costs the media buyer and whether this cost fits the economics of the campaign setup.
How to calculate CPA
Formula:
CPA = Advertising expenses / Number of target actions
For example, $1 000 was spent on advertising and 50 registrations were generated:
$1 000 / 50 = $20
The CPA will be $20. This means that one registration cost an average of $20.
If 100 registrations were generated with the same expenses, the CPA would decrease to $10.
However, a low CPA alone does not mean that the campaign is profitable. It all depends on how much the advertiser earns from the acquired action or how much the affiliate program pays for it.
For example, if the CPA is $20 and the affiliate program pays $35 for an approved registration, the difference is $15 before accounting for other expenses. If the payout is $15, this acquisition cost is no longer profitable.
What can be considered a target action
CPA is not tied to one specific type of conversion. In different campaigns, it may refer to the cost of:
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a registration;
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an application;
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a purchase;
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a deposit;
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an app installation;
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a subscription;
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another predefined action.
Therefore, when comparing CPA, it is important to understand exactly which action is counted as a conversion. A CPA of $20 for a registration and a CPA of $20 for a purchase — are completely different results.
CPA as a payment model
The term CPA is used not only as a metric. In affiliate marketing, CPA also refers to a payment model in which the affiliate receives a fixed payout for a target action.
For example, an affiliate program offers a CPA of $50 for an FTD. This means that the affiliate marketer will receive $50 for each acquired user who makes their first deposit and meets the offer requirements.
Here, CPA refers not to the media buyer’s conversion cost but to the payout amount offered by the affiliate program for the action.
Important: CPA should be evaluated together with the quality of the acquired conversions. Cheap registrations or leads are not always more profitable than expensive ones if most of them are not approved, do not result in a purchase, or fail to meet the offer requirements.
