How to Lower CPA for an Online Store

How to Lower CPA for an Online Store

1. 1

   Work out the return your margin actually needs

   Take your average order value, subtract cost of goods, shipping, payment fees and an allowance for returns, and you have the gross margin an order really contributes. On a $50 order value with $20 of gross margin, you have $20 to cover acquisition and everything else. Write down the cost per purchase that leaves you profitable and the return that implies. A campaign at three times return can still lose money on a thin margin product, so the benchmark has to be yours.

2. 2

   Raise average order value before you attack the cost

   The fastest way to make a given cost per purchase affordable is to make the purchase bigger. A bundle, a two pack, a matched accessory or a size upgrade all raise what an order contributes without changing what you pay for the click. If cost per purchase sits at $18 and you move average order value from $40 to $58, the campaign changes character completely while the ad account looks identical.

3. 3

   Set a shipping threshold at a number that helps you

   Free shipping over a threshold is one of the few levers that lifts basket size and reduces the shipping cost you absorb per item. Set the threshold above your current average order value by enough to prompt a second item, then check the maths: if shipping costs you $7 and the threshold lifts the order by $22 of margin, it pays. Set it too low and you give away shipping on orders that were happening anyway.

4. 4

   Treat discounting as a last lever, not a first one

   A discount code reliably lowers cost per purchase, which is exactly why it is a trap. Ten percent off may lift conversion enough to bring cost per purchase from $24 down to $19, while removing more gross margin per order than the $5 you saved. Before running any offer, work out the margin left after the discount and compare that against the cost per purchase you now expect, not against the old one. If the discount is the only thing making the campaign look viable, the offer or the product economics are the problem.

5. 5

   Decide what a first order is allowed to cost

   A first order at break even is fine if the second order is profitable and reasonably likely. It is dangerous if there is never a second order. Look at your own repeat rate over a window that suits your category, and how much margin a returning customer contributes, before you allow acquisition to run above first order margin. A consumable with steady reorders can carry a higher first purchase cost than a one time item a shopper buys once and never thinks about again.

6. 6

   Make the second order more likely instead of buying it again

   If repeat purchase is what makes your numbers work, the cheapest place to improve it is after the first order rather than in the ad account. A clear packing insert, a reorder reminder timed to when the product runs out, and a product range where the obvious next item is easy to find all raise repeat rate. Retargeting existing customers costs money every time; a reason to come back does not.

7. 7

   Cut the spend that produces clicks and no orders

   Once a week, look at which audiences, placements and creatives are spending without producing purchases, and stop them. Traffic that reaches a product page and never checks out is the most expensive traffic you buy, because it costs the same as traffic that converts and returns nothing. Move that budget to whatever is producing orders at a cost your margin can carry.

8. 8

   Review against your own margin, not a published figure

   Compare each review period against the cost per purchase and return you calculated in the first step, and record the offer that was running so the numbers stay interpretable later. A return figure from a case study about a different product, at a different price, with a different margin structure, tells you nothing about whether your campaign is working. Change one thing at a time so you can tell which change moved the result.