For months all I’ve been reading in the news about App Marketing is how Cost Per Acquisition (CPA) is rocketing and there’s no end in sight. For those who aren’t into marketing performance metrics, CPA or as we should call it CPU (Cost Per User) is the amount of money that you to spend to acquire a single user.
The data comes from various sources. One in particular, which I will not name because I’m not a finger-pointer, regularly puts out press releases on how they are observing the CPA/CPU’s rapid increase. It’s like a template press release.
A Few Things About CPA
If you don’t know about CPA, this information might help when thinking/discussing them.
Apps CPA is worked out by two figures: Spend / Number Of Downloads = CPA
The figure yielded is what it has cost you to acquire the download. The ‘spend’ figure can be calculated a few ways. If you’re using an agency it’s usually what it cost in total for the activity that the agency is working on. This a fair way to calculate it as usually an agency is hired to do a specific job or manage a specific channel with little input into overall strategy. An accountant should use a few figures when calculating this.
What Increases Cost-Per-Acquisition?
CPA will increase if conversion rate decreases. If your spend stays static and conversion rate goes down, then CPA goes up. If your spend increases and the additional traffic is less targeted/ interested conversion rate will go down and CPA goes up. Simple.
Why I Think App Cost-Per-Acquisition Is Going Up
I have a straightforward theory why I believe CPA is rising. Primarily, I believe that when these companies are talking about increased CPA’s they are talking about the CPA of display advertising or the CPA of a specific channel. If CPA is going up it’s probably because of an increase in ad prices caused by an increase in demand. Which in turn was caused by every person flocking to one channel to look for growth. Make sense?
There Could Be Other Reasons
We know that the ‘Boom Money’ is not in the app stores any more. There are more apps flooding Google Play, Kindle App Store and Apple’s App Store every day (probably Window’s App Store too, ha!). It’s a tough game out there. The relentless flow of apps will be having an impact in the cost per acquisition of a user. I won’t deny that. But it’s hard to gauge what that impact actually is. Realistically the 300 apps entering the app stores daily are from indie developers of which very few are producing apps that are any good.
It’s a difficult thing to quantify.
How Can You Cut Your CPA?
To decrease your app CPA you need to decide firstly how much is too much to spend on acquiring a customer: get your KPI’s nailed from the start. How to decide this could be an entire post on its own. A quick way to do this is to understand your margins then devote XX% to acquiring customers.
After deciding how much you are willing to spend to acquire a customer you must then begin monitoring your CPA for each channel. If a channel is already over the target CPA you may want to consider cutting it from your activity, unless you have other channels lower that are picking up the slack.
If other channels are creeping towards your maximum CPA then you need to begin to understand why and what has changed. Is it your conversion rate? Could it be that the medium is becoming too expensive because demand has increased? Could it be that your channel manager isn’t doing a great job at managing the account or activity. Answer these questions, fast!
If it’s the channel itself which has become too expensive, you need to understand whether it’s a short term or seasonal shift or if the market has matured and the price is increasing because of demand. PPC in 2006 was super cheap compared to now. The channel matured, became busy, aggressive, competitive and in many cases too expensive to justify.
Find New Channels
Most companies roll out one or two channels, mainly because they lack the resource or skills to manage others. If a primary channel is increasing in CPA don’t be complacent and accept this as the future norm. Look at other places for growth and exposure. Email, social, ASO 🙂 whatever you’re not doing, try it and see if you can reduce your CPA. As I mentioned before, if you can get a lower CPA somewhere else you can then bring down your total average, which means you can continue working with the more expensive channels.
The windbag is empty…
Well that’s my mental dump on CPA. In brief: Identify the problem and get on top of it quickly. Try new channels. And be ruthless enough to drop an increasingly ineffective channel.
As I’m writing this post I see that MobileDevHQ has released an API. Twitter has exploded with tweets. I guess I’ll need to respond sometime this week. Exciting times ahead!