{"id":1678,"date":"2016-03-31T15:33:18","date_gmt":"2016-03-31T15:33:18","guid":{"rendered":"http:\/\/blog.whoopapp.com\/?p=1678"},"modified":"2023-11-14T08:29:33","modified_gmt":"2023-11-14T08:29:33","slug":"max-cpa-vs-average-cpa","status":"publish","type":"post","link":"https:\/\/smarter-ecommerce.com\/blog\/en\/google-shopping\/max-cpa-vs-average-cpa\/","title":{"rendered":"Max CPA vs Average CPA &#8211; Or: Profitability vs Wide Reach"},"content":{"rendered":"<p>Online Marketers often have to optimize their performance in favor of Cost per Acquisition (CPA). In this post we will show you the difference between a Maximum CPA (Max CPA) and an Average CPA.<\/p>\n<p><b>Tl;dr:<\/b><\/p>\n<ul>\n<li><b><b>Marketers often need to work with a fixed budget which they have to spend and get the maximum out of it<\/b><\/b><\/li>\n<li><b>The CPA is calculated as: CPA = Costs \/ Conversions<\/b><\/li>\n<li><b>Save budget by using the Max CPA Method (an incremental method)<\/b><\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>The reason why Online Marketers need to cast an eye on the CPA is that they often <strong>need\u00a0<\/strong><span style=\"font-weight: 400;\"><strong>to achieve the maximum sales-performance within a fixed budget<\/strong>. In this case, the KPI of choice &#8211; and thus to optimize &#8211; is CPA (Cost per Acquisition).<\/span><\/p>\n<p>Let\u2019s have a look at the basics of Cost per Acquisition.<\/p>\n<p>&nbsp;<\/p>\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\"><p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<\/div><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/google-shopping\/max-cpa-vs-average-cpa\/#the-cpa-basics\" >The CPA Basics<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/google-shopping\/max-cpa-vs-average-cpa\/#a-quick-and-easy-example\" >A Quick And Easy Example<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/google-shopping\/max-cpa-vs-average-cpa\/#profitability-or-widening-your-reach\" >Profitability Or Widening Your Reach?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/google-shopping\/max-cpa-vs-average-cpa\/#you-should-use-the-max-cpa\" >You Should Use the Max CPA!<\/a><\/li><\/ul><\/nav><\/div>\n<h2><span class=\"ez-toc-section\" id=\"the-cpa-basics\"><\/span><span style=\"font-weight: 400;\">The CPA Basics<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The CPA is calculated as:<\/span><\/p>\n<p><a href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/wp-content\/uploads\/2016\/03\/CPAvsCPC-div-1.png\" data-rel=\"lightbox-image-0\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-1712\" src=\"https:\/\/smarter-ecommerce.com\/blog\/en\/wp-content\/uploads\/2016\/03\/CPAvsCPC-div-1-1024x576.png\" alt=\"CPA = costs \/ conversion\" width=\"650\" height=\"366\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">The total cost of Shopping Campaigns will be divided by the number of conversions of the individual campaigns. To be more precise: This results in an <strong>overall AVERAGE CPA<\/strong> of your campaigns, <strong>but different campaigns (and products) will contribute to this aggregation very unequally<\/strong>. This is really important to understand, because later in this post you will see the difference to a Maximum CPA Approach for optimizing your campaigns.\u00a0<\/span><\/p>\n<p>Back to the basics: If your current Average CPA is above your <a href=\"https:\/\/support.google.com\/google-ads\/answer\/6268632?hl=en#:~:text=Target%20CPA%20bidding%20is%20an,desired%20average%20cost%20per%20conversion.\" target=\"_blank\" rel=\"noopener\">Target CPA<\/a> (meaning the amount you are willing to spend for a conversion), you usually would lower the bids as fast as possible to meet your constraint (meeting the Target CPA).<\/p>\n<p>But is this really useful and best practice?<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"a-quick-and-easy-example\"><\/span><span style=\"font-weight: 400;\">A Quick And Easy Example<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Let\u2019s look at the performance\u00a0of these\u00a0two campaigns, covering the same products:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Campaign A is using a Max CPA Approach of $ 5.50 per conversion on product level and gets 2,000 conversions<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Campaign B is using an Average CPA Approach of $ 5.50 per conversion on campaign level and gets 2,001 conversions<\/span><\/li>\n<\/ol>\n<p><a href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/wp-content\/uploads\/2016\/03\/CPAvsCPA_tab1.png\" data-rel=\"lightbox-image-1\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-1701\" src=\"https:\/\/smarter-ecommerce.com\/blog\/en\/wp-content\/uploads\/2016\/03\/CPAvsCPA_tab1-1024x304.png\" alt=\"MaxCPA vs Average CPA table\" width=\"650\" height=\"193\" \/><\/a><\/p>\n<p>&nbsp;<\/p>\n<p><span style=\"font-weight: 400;\">Both campaigns have to meet the constraint of a Target CPA of $5.50, meaning that you do not want to spend more than $ 5.50 per conversion. Campaign A has 2000 conversions and campaign B 2001 conversions. Now the interesting question is: what do we mean with &#8220;<strong>we do not want to spend more than $ 5.50 per conversion<\/strong>? So let\u2019s have look at the statistics\u00a0of both campaigns for answering that question:<\/span><\/p>\n<p>The Max CPA Campaign is optimized considering a maximum of $5.50 for a conversion calculated for every single product. You get 2,000 conversions for costs of $10,000 and your average CPA is $ 5.00.<\/p>\n<p><span style=\"font-weight: 400;\">Example B, which uses the Average CPA Method with $ 5.50 on campaign level, will also not exceed your<\/span> <span style=\"font-weight: 400;\">defined limit, but the overall Average CPA<\/span> <span style=\"font-weight: 400;\">of $5.25 is slightly higher than in example A.<\/span><\/p>\n<p>What does this mean? At the first glance, both examples lead to a positive result. <strong>You will even have some space for investing more of your budget<\/strong> because both results are still under your limit of spending $5.50 per conversion. But does it really make sense? And what is the difference?<\/p>\n<p>Because of the optimization in example B, you gained one additional conversion. But: the total costs also increased by\u00a0$500 compared to\u00a0example A.<\/p>\n<p>Long story short: one additional conversion just cost you an whooping $500 on top! If you would have used the Max CPA Approach on a product level you would have saved the $500 bucks, because the Maximum CPA limit of $5.50 calculated with an incremental approach helps to avoid things like that.<\/p>\n<p>So, the question you really have to answer is: <strong>does the aggregation of performance data really is a good match to judge if you are on track and meet your goals<\/strong>? Mostly, you do not want to spend an amount which is 100 times larger than your maximum willingness to pay for a conversion. Presumably, you do not even want to spend an amount twice or three-times as large as your maximum willingness to pay for a conversion.<\/p>\n<p>If you have the choice to optimize your campaigns on a more granular level and you can apply an incremental approach (by using Max CPA) you should do that. If you decide to not use this approach you really should take a look at your unit economics.<\/p>\n<p>But what if your budget has to be spend anyways and nobody cares about the efficiency?<br \/>\nHere are some tips for tackling this challenge and to surprise your boss:<\/p>\n<ul>\n<li>Try to combine budgets and allocate them wisely to different channels with more efficient CPAs<\/li>\n<li>Try out some new channels with the saved budget and invest it in there<\/li>\n<li>Try to redesignate budget and set other goals for it (eg. Branding, Engagement, &#8230;)<\/li>\n<li>Be clear and transparent while reporting and show the\u00a0distribution\u00a0of conversions and costs, maybe also reporting with an incremental approach<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"profitability-or-widening-your-reach\"><\/span><span style=\"font-weight: 400;\">Profitability Or Widening Your Reach?<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Let\u2019s sum it up: <\/span><\/p>\n<p><span style=\"font-weight: 400;\">Exhausting your budget, can result in a wider reach at the expense of profitability.\u00a0<\/span><span style=\"font-weight: 400;\">Looking for profitability it is the best way to optimize your campaign on a product level with a Max-CPA-Approach. If you have a manageable number of products, MAX CPA optimization on a product level is achievable. But if you have a product line of several thousand products, you can\u2019t leave out automation.<\/span><\/p>\n<p>Do not forget, this concept of incremental judgement also applies for ROAS-based Goals.<\/p>\n<p>&nbsp;<\/p>\n<h2><span class=\"ez-toc-section\" id=\"you-should-use-the-max-cpa\"><\/span><span style=\"font-weight: 400;\">You Should Use the Max CPA!<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><a href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/wp-content\/uploads\/2016\/03\/CPAvsCPA-win.png\" data-rel=\"lightbox-image-2\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-large wp-image-1699\" src=\"https:\/\/smarter-ecommerce.com\/blog\/en\/wp-content\/uploads\/2016\/03\/CPAvsCPA-win-1024x576.png\" alt=\"MaxCPA vs Average CPA winner\" width=\"650\" height=\"366\" \/><\/a><\/p>\n<p><span style=\"font-weight: 400;\">We at smec with conquer this situation in the following way: With our software solution we are able to set MaxCPA strategy to <strong>handle every product individually<\/strong>. You can set an <strong>individual MaxCPA for any category, brand, product or custom label<\/strong>. Be smart and save your budget! If you are working for a customer and he is complaining that you did not utilize exhaust his budget, just show him our small example above and use the tips we provided.<\/span><\/p>\n<p>If you are curious about which current strategies dominate Google Ads and Performance Max, read our recent blog article where we <a href=\"https:\/\/smarter-ecommerce.com\/blog\/en\/google-ads\/target-roas-in-pmax-retail-campaigns\/\" target=\"_blank\" rel=\"noopener\">decoded data from over 3000 PMax retail campaigns<\/a>. Spoiler alert: Dominance of Target ROAS and less usage of Target CPA.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Online Marketers often have to optimize their performance in favor of Cost per Acquisition (CPA). In this post we will show you the difference between a Maximum CPA (Max CPA) and an Average CPA. Tl;dr: Marketers often need to work with a fixed budget which they have to spend and &#8230;<\/p>\n","protected":false},"author":14,"featured_media":1700,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,434],"tags":[30,66,104,143,198,232],"class_list":["post-1678","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-google-shopping","category-insights","tag-average-cpa","tag-cpa","tag-ecommerce","tag-google-shopping","tag-max-cpa","tag-ppc"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v26.7 (Yoast SEO v27.4) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Max CPA vs Average CPA - Or: Profitability vs Wide Reach<\/title>\n<meta name=\"description\" content=\"What is the CPA - and why should you differ between Maximum CPA (Max CPA) and Average CPA? 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We&#039;ll show you our best practice - read more!\" \/>\n<meta property=\"og:url\" content=\"https:\/\/smarter-ecommerce.com\/blog\/en\/google-shopping\/max-cpa-vs-average-cpa\/\" \/>\n<meta property=\"og:site_name\" content=\"smec Blog | Follow current Ecommerce News, Trends &amp; Insights\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/SmarterEcommerce\" \/>\n<meta property=\"article:published_time\" content=\"2016-03-31T15:33:18+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-11-14T08:29:33+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/smarter-ecommerce.com\/blog\/en\/wp-content\/uploads\/2016\/03\/CPAvsCPA.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1920\" \/>\n\t<meta property=\"og:image:height\" content=\"1080\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Hueseyin Guerbey\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@HueseyinGuerbey\" \/>\n<meta name=\"twitter:site\" content=\"@smec\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Hueseyin Guerbey\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"6 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\\\/\\\/schema.org\",\"@graph\":[{\"@type\":\"Article\",\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/#article\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/\"},\"author\":{\"name\":\"Hueseyin Guerbey\",\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/#\\\/schema\\\/person\\\/c28c7652cb5ed6f71764bfd429de5994\"},\"headline\":\"Max CPA vs Average CPA &#8211; Or: Profitability vs Wide Reach\",\"datePublished\":\"2016-03-31T15:33:18+00:00\",\"dateModified\":\"2023-11-14T08:29:33+00:00\",\"mainEntityOfPage\":{\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/\"},\"wordCount\":1012,\"publisher\":{\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/#organization\"},\"image\":{\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/wp-content\\\/uploads\\\/2016\\\/03\\\/CPAvsCPA.png\",\"keywords\":[\"Average CPA\",\"CPA\",\"ecommerce\",\"Google Shopping\",\"Max CPA\",\"PPC\"],\"articleSection\":[\"Google Shopping\",\"Google Shopping\"],\"inLanguage\":\"en-US\"},{\"@type\":\"WebPage\",\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/\",\"url\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/\",\"name\":\"Max CPA vs Average CPA - Or: Profitability vs Wide Reach\",\"isPartOf\":{\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/#primaryimage\"},\"image\":{\"@id\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/google-shopping\\\/max-cpa-vs-average-cpa\\\/#primaryimage\"},\"thumbnailUrl\":\"https:\\\/\\\/smarter-ecommerce.com\\\/blog\\\/en\\\/wp-content\\\/uploads\\\/2016\\\/03\\\/CPAvsCPA.png\",\"datePublished\":\"2016-03-31T15:33:18+00:00\",\"dateModified\":\"2023-11-14T08:29:33+00:00\",\"description\":\"What is the CPA - and why should you differ between Maximum CPA (Max CPA) and Average CPA? 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