Why Cost Per Acquisition (CPA) doesn’t matter at the start

on June 12 | in Blog, Startups | by | with No Comments

What is cost per acquisition?
A quick explainer for those not familiar with the term. Cost per acquisition is the cost of an activity that generates traffic to your website or downloads of your app. If I buy a banner advert (who buys banner adds these days?) for $60 and 3 people click on that banner add per day and visit my website then the cost per acquisition is $60/3 = $20. My Cost Per Acquisition (CPA) is therefore $20 per customer/user.

You may have heard people say “do things that don’t scale when starting out”, this means doing things that are resource intensive that you know you couldn’t scale because it wouldn’t make financial sense.

So why do non scaling stuff in the early days?
You are seeding your startup trying to build momentum so you can afford to do things that will not scale because you know or believe their will be a tipping point where momentum takes over and you no longer need to put as much effort in to meet your targets. Think of it like pushing a giant rock down a hill, getting it going requires huge effort probably by a group of people pushing with all they have but once it starts to roll it requires little effort to keep it going.

In the early days of testing an idea you are acquiring customers/users to test your hypothesis and iterating the product based on the feedback from those customers/users. Therefore you are also going to be doing things that don’t scale to acquire those customers/users (social media, blog posts, content marketing etc) and if you are looking for quick tests then you are almost certainly going to have to do some paid acquisition. Given that you are in testing hypothesis mode and you are in no way optimising your customer acquisition strategy there is no need to measure your cost per acquisition. Of course it does start to give you some valuable data and some ball park figures but its far from accurate and shouldn’t be used to base your financial model around.

It is very possible to go from $10 cost per acquisition down to $0.20 after you learn what works and optimise your strategy. So to base your financial model on $10 when it could end up at $0.20 is going to make it way out, of course if the financial model works at $10 per customer then its going to kick arse at $0.20.

Therefore while you are in the early stages don’t worry about the cost worry about which methods are effective, spend your time tracking which blog post and which tweets were more effective rather than the relative cost. By effective I mean activity which drove traffic to your website or to downloaded your app.

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