1. CPA takes your eye off the ball
As an eCommerce business, AdWords is a channel for you to sell your products and generate revenue or profit. When you measure your PPC efforts in a CPA model your attention is shifted from profit to optimizing the cost of acquisitions. This distraction leads you to make tradeoffs between costs and traffic instead of improving the performance of your business. This distraction ultimately misaligns your goals with the goals of the rest of your company, making it harder to justify budgets and prove the impact on the business.
The majority of PPC vendors and experts have exceptional credentials about how to drive CPA costs down and volume up. They are armed with charts and dashboards about how fantastic your campaign performance will be. However, as an eCommerce company, CPA is an irrelevant metric for you. You are generating sales, not leads, and each sale brings in a different amount.
Solution: Keep your focus on profit and revenue, centering all of your activities around optimizing for revenue and profit. You know the ability for each keyword to generate profit. Use it when you decide to what bid for the next click. When bidding, make regular adjustments based on the profitability of individual keywords, rather than some average number everyone in your industry is using.
2. CPA simply makes you a part of the flock
Using the CPA model will make you a part of a flock of sheep, err, competitors. In any given industry, the common CPA target is roughly the same across all competitors, conversion rates are roughly the same, and the core keyword bank is about the same. The end result is a flock of sheep all doing roughly the same thing which only drives up CPC. When your company is stuck in this group-think method it’s impossible to stand out and effectively rise above your competition.
Solution: Stand above your competitors by optimizing your AdWords account on profit, rather than the same metrics your competitors are using. Conversion rates matter, but profit (or at least revenues) matter more when deciding where to spend your ad budget. You have the data on the value of each customer, use it to drive your keyword bank and adjust your bids.
3. CPA hides your real business performance
CPA creates a separation between an acquisition and the value returned to your business by focusing on the cost of getting a customer to your site, rather than how much the customer purchases. In this situation, you could double the number of conversions at a lower CPA and it could be devastating for your business. When you create separation between acquisition and profit, it creates a scenario where you are no longer able to quickly adjust your AdWords efforts to match your business goals.
Solution: Measure and optimize based on the profit returned to you. When optimizing for profit you can exponentially increase traffic without having a negative effect on your business. When you have a direct correlation between ad spend and profit, you can easily decide the target profit you want to achieve and adjust your bids accordingly.
4. CPA forces decisions according to averages
The CPA model creates an AdWords account structure that supports your CPA target. When assembling keywords and ads into groups that match your site structure or product categories, the CPA model adjusts only to changes in the averages, rather than individual changes. For instance, an ad copy change can have a positive effect on one keyword and a negative effect on another, but when you have keywords lumped together these effects get lost in the averages.
Solution: Separate each keyword and each bid, recognizing the individual contribution to profit differently than the rest. Control, accuracy and leverage are your favorite tools to buy the best and most profitable clicks, you need all you can have of all three. Averages = Bad, Real data = Good. It is there, use it!
As you know, online competition is fierce and the competitive landscape changes on a daily basis. The most reliable way to win on AdWords is to leverage every advantage in your favor. Get a free AdWords audit to see how moving from the CPA model will help drive more profit and revenue for your business.
-bjorn.espenes
