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What Is Cost per Acquisition?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 03 November 2016
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Cost per acquisition is a term used to describe the total amount of resources that are consumed in the effort to convert a lead into a customer. Sometimes identified as a cost per action, this approach takes into consideration all sorts of expenses associated with the effort, including advertising through different media, the time devoted to the task by sales professionals, and any other related costs that are incurred up to the point of securing that customer. Calculating this type of expense is important for businesses, since it helps to identify which resources are being used to best advantage and which ones need to be discarded or adapted in some manner in order to become more cost effective.

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The idea of cost per acquisition can be understood as identifying the investment that a provider makes in securing a customer and ultimately closing a sale. By having a clear understanding of how much expense is incurred as part of the effort, it is then possible to compare that amount to the projected benefits associated with that customer. For example, if the total cost per acquisition associated with landing a client contract that will generate $1,000,000 US dollars in income annually for the next three years involved expenses that amounted to $25,000 USD, the cost per acquisition is definitely worth the time and resources involved. Should that same effort result in securing an order for goods or services that amounts to no more than $30,000 USD in sales, the cost per acquisition is much less attractive.

A number of factors go into determining the cost per acquisition. Measurable expenses such as the costs of creating and operating a telemarketing effort to qualify leads, support materials prepared for review by the prospect, advertising in various media outlets, the time spent by salespeople in pursuing the potential client, and even expenses such as travel costs to engage the client face to face are often considered as part of the overall cost associated with converting a lead into a customer. The exact combination of factors will vary, based on how the company does business and what types of efforts are used to attract the attention of consumers.

By identifying the current cost per acquisition, companies can determine if current sales and marketing strategies are working, or if some changes are in order. For example, a business may find that television advertising is attracting very little attention for its products while online advertising is generating a number of qualified leads that ultimately become customers. When this is the case, the business may choose to minimize or even eliminate the use of television ads and focus more on online strategies to reach and eventually acquire customers.

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