Why your CPA is the most important metric when it comes to your business and why knowing what is will help you make better business decisions!
What is your CPA? Or should I be asking do you know what a CPA is? Here's a hint, I'm not talking about your accountant and it's something that will honestly dictate just about EVERYTHING you do in your business once you know what it is. A surprising number of business owners don't know what their CPA is and what this means is that they inevitably end up spending the wrong amount of money in the wrong places for little nor return.
Your CPA is your Cost Per Acquisition. Essentially how much you have to spend to secure each client, customer or sale. Now depending on what you do and how you do it, this figure can end up being a lot more than you realise because of all the other costs that go into getting your prospects over the line.
For small businesses to grow, they need to find sustainable strategies to acquire new customers. The most important rule to grow sustainably is to make sure your revenue from each each new customer is higher than the cost to acquire them.
Cost Per Acquisition is not a new concept but the term has gained popularity in recent times as we moved into a new phase of the digital age. Digital advertising has become the most utilised form of advertising and has shifted the WAY we advertise. It has created new ways to acquire customers and also increased the awareness of the importance of these kinds of metrics in business.
Now don't confuse your CPA with you Cost Per Lead (CPL). Your CPA is basically your CPL plus every other costs incurred to convert that lead to a sale.
So how can you lower your CPA so that your making more profits whilst spending less to get people over the line? Well the most obvious answer would be to reduce the cost of getting the initial leads you're trying to convert. This then lowers your CPL and in turn your CPA. There are a number of ways you can do this from streamlining your lead generation systems, finding more cost effective technologies or programs to help automate some or all of the lead generation process (be careful with this though) or even simply scrapping your existing lead generation strategy for a more effective and tested one.
The second way is to improve your conversion ratio/rate. Now this is more than just telling your sales team they need to try harder. You need to look at the bigger picture. You can have the best sales team in the world but if their not well resourced enough, there is going to be a limit on what they can do. Commit to ongoing training (be that internal or external) and make sure you recognise and reward high performing team members and coach, encourage and support those who might just need a little help to perform at their best.
Having a solid understanding of you CPA is very useful when someone tries to sell you space in a newspaper or a local trades guide. Granted you need to have good conversion systems in place in order to make sure you convert the leads they generate but if they don't generate enough leads, or enough of the right leads, then you'll end up paying out more than they actually bring in for you.
Now you see why knowing your CPA not only helps you make those more informed business decisions but also creates a sense of awareness around what the real costs of doing business are and why all your marketing, advertising and lead generation spends need to be netting you more than what they are costing you in order to grow your business.
If you'd like to talk to an expert on lead generation and conversion or anything to do with growing your business to be more profitable and a vehicle to improve your lifestyle and choices, you need to speak to Shannon Daniels from Emanation. Shannon won't just help you formulate strategies that will grow your business. He will also provide you with the tools and resource to create the systems you need to automate, systemise and delegate so that you spend less time working IN your business and more time working ON your business.
Call Shannon today on 1300 535 022 or email [email protected] and get started on the path to happier, more fulfilling business ownership!