One of the most common topics that came up, especially for a start-up company drafting a financial model, is CPA (cost per acquisition), and CPL (cost per lead).

Cost Per Acquisition (CPA) is the cost of acquiring your user, that typically involved a user transaction, meaning the user making a purchase of your product or a service, a successful sale.

Cost Per Lead (CPL), on the other hand, is the cost acquiring a contact, an email address for example, a potential customer in the future.

Depending on the nature of your business, you might want to consider including cost per lead as an ROI variable. Your service or product might be a high-ticket item such as a camera. Typically a website browser will not buy a camera online at first browse. He might be browsing your camera website, along with multiple other websites, but he likes what your services have to offer, because you provide additional cleaning services for example. Here’s an opportunity to let the browser stay in touch with your business, offer him an option to send over his email address to get more insights on the camera he’s interested in! – nice pop-up message would do 🙂

When you acquire a user’s email address, that’s a lead.

Now that we’ve demystify the difference between CPA and CPL. Here’s how we calculate them —

CPA:

Source	Ads bought	CTR	Clicks	Signup %	Buy a camera	No. of buyers	Cost	CPA
Google	1M	0.50%	5,000	20%	50%	500	$5,000.00	$10.00

Here we’re assuming a conversion rate of 10%, and CPC (cost-per-click) of $1, which is mighty high for an ecommerce company.

If we assume our conversion rate is at 1% (5% out of the no. of users sign up on site buys a camera), see new table below:

Source	Ads bought	CTR	Clicks	Signup %	Buy a camera	No. of buyers	Cost	CPA
Google	1M	0.50%	5,000	20%	5%	100	$5,000.00	$100.00

At 1% conversion rate, your CPA will be at $100. Thus depending on your profit margin per item, you can find out how if your CPA is < than than your profit margin per item and your LTV per customer, which is a sound business plan.

In the next post, I’ll go more in depth on how to tweak different levers of cost per click on keywords bidding, to make sure that you are in control of your marketing budget.

*LTV is lifetime value per customer