What is CPA in advertising? Definition, formula and maximum CPA calculation
CPA tells you how much it costs to acquire each paying customer through ads. But the number only matters when compared against your profit per sale.
Calculate my CPACPA formula
Cost Per Acquisition
CPA = Ad Spend ÷ Number of sales
Example: $500 spend ÷ 25 sales = $20 CPA
Maximum allowable CPA
Knowing your CPA is useless without knowing the maximum you can afford. The maximum CPA is the point at which each sale breaks even — the cost to acquire equals the profit from the sale.
Maximum CPA (break-even)
Max CPA = Average order value × Gross margin
Example: $60 AOV × 35% margin = $21 maximum CPA
If your CPA is above the maximum, each ad-acquired customer costs you money. Your target CPA should be below the maximum — how much below depends on your ROI target.
Target CPA for your ROI goal
Target CPA = Max CPA ÷ (1 + desired ROI)
For $21 max CPA and 30% ROI target: $21 ÷ 1.3 = $16.15 target CPA