Like all PPC platforms, Google Ads offers several metrics and bidding strategies to its users. In this context, CPA is pretty unique. CPA, which stands for cost per action, doubles up as an important metric as well as a bidding strategy.
In this lates blog post, we will be talking about CPA in Google Ads great detail. How you can use it as a key metric to gauge the performance and impact of your CPA Google Ads campaign, and how to use it as an effective bidding strategy that can maximize your ROI.
CPA is an important performance metric
Cost per action basically tells you how much cost does your company or business incurs in order to attain each conversion during the campaign. If we’ve to rephrase this in simple words then it simply means how much money does a company spend to attain every single conversion during a campaign. Therefore, from a business point of view, lower the CPA, higher is the ROI (return on investment). Hence most companies would obviously always want to lower its CPA as much as possible.
The most obvious advantage of having a lower cost-per-action is that it brings down the overall budget of your Google ad campaign. This leaves your business with more money to buy additional online advertising space, which could potentially lead to more conversions.
This obviously brings us to the next question about how to bring down the cost. The answer is ‘quality score,’ which is actually one of the most important metrics in Google Ads. Quality score is always inversely propionate to your CPA score. If your campaign enjoys a good quality score then it is pretty much given that your cost-per-action score will always be lower.
We will be speaking about how to improve your campaign’s quality scores in the latter part of this blog.
How does Google Ads calculate CPA?
Google Ads has a simple formula to calculate CPA for any campaign. It divides the total cost of conversions by total number of conversions.
CPA = Total cost of conversions/Total number of conversions.
Let us breakdown this formula with a simple example. Let us suppose you’ve spent total $200 in a particular Google ad campaign and earned total 10 conversions. This means you’d to spend $10 for earning every single conversion from the campaign. Hence your CPA would be $10.
Kindly note that the average CPA in Google ads vary across different businesses and industries. The average cost per action for certain businesses is higher while other businesses it may be lower.
How to access CPA in Google ads
You can easily access CPA at the ad group level. Kindly follow the following steps.
- Kindly log in into your Google Ads account
- Click on Campaign and then click on Ad groups
Once you’re into ad groups, you’ll see various columns and you should be seeing a column called Cost/Conv.
In case if you don’t find this column anywhere then kindly follow the following steps.
- Click on Column and then click on Modify Columns.
- Expand the Conversions section and check the box next to Cost/conv.
- Click apply to save the changes.
- This will add CPA column to your campaign table view or dashboard.
What is a Quality Score?
Quality score is a metric in Google Ads that measures the overall quality of your keywords, ad copy, landing page among other things in comparison with your competitors. It is measured from the scale of 1 to 10, with 10 being the highest score and 1 being the lowest score.
Several Google ads professionals classify QS in to different types. For instance, Ad group quality score, keyword-level quality score and Ad level quality score. However, traditionally and primarily, quality score is always judged at the keyword level. This means QS is assigned to your each keyword (from 1 to 10) in your campaign or ad group
How quality score impacts CPA
As mentioned earlier, quality score (QS) probably plays the most decisive role in determining your CPA. We will now glance through how QS impacts your cost-per-action.
Lower Cost Per Click (CPC): A higher QS implies lower CPCs because Google rewards ads with good QS much better or favorable positions in Google search at a much lower cost. This means you’ll be spending much less than your competitors while your ads will enjoy higher click rates, potentially leading to better conversion. This in-turn obviously helps in lowering your CPA.
Favorable Ad positioning: As mentioned above explicitly that a good QS invariably leads to better Ad positioning., mostly positioned at the top of Google search; leading to higher visibility for your ads that subsequently helps in pushing up your CTR (click-through-rate), which further helps in improving your QS. All these augurs well for your ultimate aim to lower the Cost Per Action.
Improved relevance: A good QS gives an explicit signal to Google’s algorithm that your ads, landing page and keywords are highly relevant to the search query. This again propels your cost-per-action to southwards.
Higher conversion rate: Allthese collectively (everything we’ve mentioned above) and ultimately paves way for better conversion rate. You get more conversion by spending less amount of money on your ad budget.
CPA as a Bidding Strategy
We’d mentioned in the very beginning of this blog post that CPA in Google ads perform as an important metric as well as a bidding strategy. We already looked into the metric part and hence now will shift the focus to the bidding strategy.
CPA bidding strategy (also known as Target CPA) is an automated bidding strategy, part of ‘maximize conversion’ bidding strategy in Google ads, that allows advertisers to set an average desired cost they are willing to pay per conversion for a particular campaign.
When you select ‘Maximum Conversion’ as a bidding strategy, you get an option to set a target cost per action. Kindly note that Target CPA is an optional bidding strategy.
Kindly checkout the screenshot below to get a clear idea. As you can see in the screen shot, the term ‘optional’ has been written in bracket beside ‘set a target cost per action.’
If you do decide to opt for Target CPA then Google Ads will use machine learning to get as much conversion as possible for a set cost-per-action budget. Its algorithm backed by machine learning will leverage your account’s historical data among other things to predict which clicks are more likely to convert into conversion and adjust bids accordingly to capture those specific clicks.
How much Target CPA you should set?
The first thing or question that invariably pops up when choosing Target CPA bidding strategy is that how much target should you set. Should you play frugal by setting a low target or take a calculated risk by setting a high target. Truth to be told, there is no straight-forward and simple answer to this question.
Many factors come into playing while setting a target cost per action that advertisers will have to duly take into account.
All these factors have been mentioned below:
Industry: The industry that you’re currently competing or part of plays a very decisive role. Mainly because average CPA differs from industry-to-industry. Some industries have higher average CPA while other industries have lower average cost-per-action.
Budget constrains: The daily campaign budget (how much advertisers are willing to spend each day) may not play all that decisive role. Advertisers can achieve their conversion goals even with low CPA. Nonetheless, it can still play the spoilsport especially if advertisers want to set a very high CPA.
Conversion goals: Your conversion goals matter a lot. Certain conversion goals carry a higher cost-per-action while others don’t. For those who are not aware, in Google ads popular conversion goals can be classified as ‘purchase,’ ‘sign-up,’ ‘lead,’ & call.
Customer Lifetime Value (CLTV): Customers of those products or services that have higher CLTV will also usually have higher target cost per action. Exactly is true in the opposite scenario.
Criteria for CPA bidding strategy
Advertisers cannot opt for a CPA bidding strategy in Google ads without meeting certain criteria.
Conversion Tracking: First and foremost, advertisers have to set a conversion tracking in their ad campaign. This helps Google to efficiently monitor specific actions that users take after clicking on the ad and accordingly optimize the bids. These actions could include purchases, form submission, app install or sign-ups
Historical conversion data: In all probability, Google Ads won’t allow you to opt for Target CPA unless your account has a good amount of historical conversion data. Historical data is important because it helps Google ads’ algorithm to make informed decision about how to optimize your bidding.
Compatibility with campaign: Another important criteria is campaign type. It is primarily compatible only with search network and display network campaigns. It is unlikely to give you good results if used for other campaign types, like video campaigns, app campaigns and shopping campaigns.
When should you opt for Target CPA bidding strategy
Target CPA is a favorable bidding strategy only in certain prevailing conditions, which have been duly mentioned below.
Unless advertiser fulfill these conditions, they shouldn’t opt for this strategy.
Focus on conversion: If your marketing goal is currently overwhelmingly focused on conversions then Target CPA is certainly your cup of tea. More importantly, you should be equally clear about how many conversions you want at a desired cost per conversion.
Have sufficient conversion data: As explicitly mentioned above, advertisers need to have adequate historical conversion data if they wish to opt for this particular bidding strategy.
Need to control cost: if you or any other advertiser want to increase their conversion rate without having to put too much strain on their budget then Target Cost Per Action can prove to be more than helpful. It helps in controlling cost by automatically adjusting and optimizing your bidding in accordance with your target CPA.
Competitive industry: In a cutthroat and highly competitive niche where securing good number of conversions consistently is a daunting task, target CPA can prove to be your ultimate savior. Its responsive bidding adjustment aligned with market changes can increase the prospects of securing good number of conversions even in the most competitive space.
Conclusion
CPA in Google Ads plays a dual role of being a useful metric and also an effective bidding strategy. Ultimately, understanding Cost Per Action is immensely critical for advertisers, especially those who are sensitive about controlling cost. It not only brings explicit clarity about your ad spending but also the overall effectiveness of your campaign. As for the bidding strategy, it can be immensely useful for companies competing in a highly competitive space. Its predictive analysis powered by machine learning coupled with ability for real time-bidding adjustment in alignment with market changes can help you achieve desired ROI.