Seriously, What’s Your Real Cost per Acquisition?
One of the biggest mistakes I see advertisers make is thinking that the ‘CPA’ they see reflected within their Google Ads, Facebook Ads, TikTok Ads, or whatever other ad platforms they’re advertising on is their ‘real CPA’.
Advertisers aren’t alone in making this mistake, though. Marketers specializing in content marketing, newsletter marketing, and other channels do too.
That’s because few marketers realize the importance of factoring in the personnel time or cost of labor.
When you aren’t factoring in the cost of labor, your advertising or marketing performance looks deceptively good at best and just plain deceptive at worst.
How can you effectively optimize your performance based on CPA if your CPA isn’t factoring in the total costs engendered by your marketing or advertising campaign?
The answer is that it can’t. You’ll optimize in a way that seems like you’re focused on reducing your cost per acquisition (and maximizing your ROAS) but in reality, you aren’t taking into account your total costs?
Let’s take a look at how this can play out:
While the example above shows that the CPA is still relatively close, the difference between the two went from Paid PPC Ads underperforming by 5% to overperforming by 1%. That’s a 6% difference.
Now let’s make the picture even more stark. The above chart only shows labor costs factored in. The truth is that there’s a whole lot more that goes into factoring in real costs.
For example, let’s consider that the Paid PPC Ads specialist running the account in the above example is a full-stack digital marketer who is competent in both copywriting, graphic design, and video production. That means that the $1000 fee he’s charging per month includes all of that work. His labor cost is the only thing we need to take into account.
The marketers working YouTube Sponsorships, however, are not copywriters nor do they work on the 30-second ad they use for sponsorships. They require the assistance of a copywriter who charges $800/mo and a videographer who charges $3000/mo for an ‘all-you-can-eat’ video production service.
This means that your total costs associated with running your YouTube Sponsorship channel is now $173,800. Remember that $113 CPA from earlier? It’s now gone up to $115. PPC ads are now overperforming by ~4.5%. And here you thought they were underperforming by about that much!
Now let’s take a look at how this affects ROAS.
For this mental exercise, we’ll assume that the return on a single unit sold is $200. This means that the pre-total cost analysis ROAS is 1.90 and 2.00 for Paid PPC Ads and Youtube Sponsorships respectively. Now let’s factor in all the additional costs. The ROAS for Paid Ads dropped from 1.90 to 1.78 but the one for YouTube Sponsorships dropped from 2.00 to 1.72.
All of this to say that if you were looking to make an optimization call and only focus on your top-performing network – if you were tight on budget and had to make a single call on what to focus on, you’d be making a mistake by focusing on YouTube Sponsorships if you’re looking to make your judgment call purely on CPA and ROAS alone.
The Full List of Factors That Impact Your Marketing Cost per Acquisition (CPA)
The following list is meant to help you determine whether or not you’ve missed something when trying to assess your real costs.
Cost of creative development: The cost of developing both multimedia and written materials such as graphics, videos, and ad copy (More on why you should stop focusing on video production)
Cost of web development: The cost of creating landing pages, quizzes, and other pieces of your website’s sales funnel.
Cost of lead-magnet: Cost associated with the creation of your lead magnet. Includes copywriting costs, website development, funnel building, etc.
Retargeting Costs: I see this mistake made constantly. Your retargeting ‘CPA’ is additive and should be added to whatever you engendered when creating the target audience which you are remarketing to. For example, if you are remarketing to an audience you ‘warmed’ on Facebook Ads using boosted posts, you must take into account how much you spent to warm that audience. You’ll quickly find that sometimes it just doesn’t make sense to retarget unless your retargeting conversion rate is significantly higher and acquisition costs, consequently, much lower.
Testing and optimization time. Sure, you’re getting a great CPA and ROAS now but what did it take you to get there? If you had to spend six months and thousands of dollars in order to arrive at your CPA goal then you should keep this in mind. I wouldn’t necessarily mix the two results together when reporting current CPA to a client but do make a note of it when you run your month-to-date and year-to-date reports.
Reporting, analysis, and communication: These are often overlooked costs that should be noted. They often account for anywhere from 25-30% of your total time spent and are mission-critical when it comes to the success of your campaigns. They should be considered personnel time.
Research: If you’re an advertiser or marketer, research is key to achieving your performance goals. That being said, it should be taken into account when you report campaign performance. If you had to spend 2 hours in order to understand the competitive landscape, product positioning, customer mindset, and so forth, then it should be added under ‘personnel time’.
Content Marketing and Social Media Marketing. These can involve copywriting costs, graphic design costs, and personnel costs. Depending on the nature of the channel you are managing they may or may not be useful to figure into your total CPA.
Public Relations and Influencer Marketing. Again, depending on the nature of the campaign you may want to factor these into your total cost.
The Full-Cost per Acquisition Calculator
In order to help you get a better idea of your true costs, I’ve designed a series of prompts that can be entered into ChatGPT. If you want to receive these prompts delivered straight to your inbox, don’t hesitate to enter your full email in the newsletter box below.
PS. If you’re interested in other uses for AI as a marketer, check out my blog post 👈
