Understanding Cost Per Acquisition

Yang Yang

Yang Yang, 29, is the founder and CEO of AMIclubwear.com, with $40 million in yearly gross profit and 1.4 million unique visitors per month.

The key to her success is cost per acquisition(CPA)—how much you spend to bring in each new customer. Yang doesn't waste a penny on advertising or marketing until she's calculated CPA. 

For example, 75% of her traffic comes from Google—a mixture of ad-words (paid) and organic searches (free). The CPA for these customers is $0.98-$1. Because it's so cheap, Yang knew it was worthwhile to launch an online magazine that pulls in even more search traffic. Same with the company's YouTube channel.

On the other hand, industry click-through rates for banner ads on celebrity blogs—think$10,000-12,000 per month for PerezHilton.com—drove less than 0.02-0.05% of her total traffic. The high CPA told Yang to stay away.

For this same reason, Yang hasn’t bothered with pricey national TV advertising either.Cheaper local TV spots in California, though, spurred a 25% increase in direct traffic.

"You can't quantifiably improve what you can't measure," says Yang. "Understanding CPA lets you eliminate the guesswork and stick with channels that build real customers."

Get measured. Are you guessing too much?