Conversion Economics – Finding Your CPA Sweet Spot
By splitting your budget between traffic and optimization you can find your cost per acquisition sweet spot.
Here’s a little injection of cool with your morning coffee.
Not only is spending a portion of your marketing budget on landing pages beneficial to your bottom line, there’s a way to predict how much you should be spending to optimize your Cost Per Acquisition (CPA).
And today I’ll share that with you.
Unbounce CEO Rick Perreault is actually the architect of this particular theorem, I’m just taking credit for it by writing the blog post.
Conversion Economics Revisited
I kicked off our Conversion Economics series a few weeks ago with the Conversion Economics 101 starter kit. Today I’ll extend that by exposing exactly how much of your marketing oyster should be shucked off on those slippery little suckers we call landing pages.
(If I’ve got you thinking of the scene in Pretty Woman where Julia Roberts flips a snail off the table, then you know I’m adequately controlling your thoughts).
How much of your marketing budget should you spend on creating and optimizing landing pages?
According to information from Omniture (a world leader in web analytics), you can achieve a 25% improvement in conversion rate by using a promotion-specific, standalone landing page (vs. sending paid search visitors to your homepage).
Assumptions: Taking 25% as our base conversion improvement value, let’s also set $10,000 as our monthly marketing campaign budget.
Reducing Your Cost Per Acquisition (CPA)
Our goal is to analyze the effect of taking a portion of the monthly marketing spend and using it to pay someone (anyone really) for the purpose of conversion rate optimization (CRO).
If you assume that 100% of the budget is spent on generating traffic via paid search (Google AdWords in this example), then what happens when you reduce that amount? Obviously the traffic will drop in direct proportion to the drop in budget.
Now, what if you spend 10%, 20%, 30% of your budget on optimizing your landing page instead of paying for traffic? In this case, 10% equates to $1,000, which will buy you a couple of days of concerted effort toward improving your landing page.
What effect wil this have on your average CPA?
Finding Your Sweet Spot
The table below shows what happens when you start taking cash away from traffic to put into improving your conversion rate through optimization strategies, and how much money you should be throwing in this direction.
| Campaign Budget | Optimization Costs | PPC Spend | CPC1 | Visitors | Conversion Rate2 | New Customers | CPA |
| $10,000 | $0 | $10,000 | $0.40 | 25,000 | 1.00% | 250 | $40 |
| $10,000 | $1,000 | $9,000 | $0.40 | 22,500 | 1.25% | 281.25 | $35.56 |
| $10,000 | $2,000 | $8,000 | $0.40 | 20,000 | 1.50% | 300 | $33.33 |
| $10,000 | $3,000 | $7,000 | $0.40 | 17,500 | 1.75% | 306.25 | $32.65 |
| $10,000 | $4,000 | $6,000 | $0.40 | 15,000 | 2.00% | 300 | $33.33 |
1 Average cost per click according to Google
2 Estimated conversion improvement of a successful test. Note: these numbers are also based on a diminishing percentage improvement per dollar spent. (25% initial increase by using a landing page followed by a compounded rate that bumps conversions by 25%, but is really only a 20% overall improvement in the second level – 25/125 equates to a 20% improvement).
What does this tell us?
What these numbers say is threefold:
- Spending a portion of your marketing budget on Conversion Rate Optimization (CRO) will yield a lower cost per acquisition for each customer.
- There is a limit (or sweet spot) to how much you should separate into this endeavor.
- In this example the sweet spot occurs when you are spending 30% of your budget on optimization. Spend any more and the CPA climbs as the loss in traffic catches up.
Finding the sweet spot for your CPA…
Your own private sweet spot will depend on how successful your CRO efforts are, perhaps you’ll only achieve a 10% increase per $1,000 spent. The only difference is that you’ll have a different chart and a different sweet spot. The important thing to learn here is that there does exist a point where you optimize your expenditure based on optimization efforts.
Find your sweet spot and you find the key to a minimized CPA.
Now ain’t that sweet!
– Oli Gardner & Rick Perreault
Related posts:
- Conversion Economics 101 – The Benefit of Landing Pages
- The 4 Truths of Conversion Marketing
- The Conversion Marketing Scorecard
Tags: Conversion Marketing, CPA, economics
