The cost of getting the first order from a customer.
Cost per new customer acquisition (CPA) is a frequently used e-commerce metric that measures how much money you spend (or you would like to spend) for one new customer.
It’s important to realize that the focus of CPA is on the customer, not on the transaction. The expenses on an order made by a new customer can be -- for example -- 5-10x higher than expenses on an order made by a returning customer.
When you run a business determine the average investments that you have to make in order to get that first order by a new customer placed. To be as precise as possible include all costs, even human resources.
Compare this to the average that the first order a new customer places is worth. With these two pieces of information, you can monitor acquisition cost levels in Roivenue for all marketing platforms and roughly see if the channel is profitable or not. Moreover, if you have some goals concerning the target volume of customers in your database or if you know the average CPA you will also know the cost for reaching that volume.
Many entrepreneurs evaluate their acquisition cost only in the short-term, focusing only on the first order. However, in many industries, customers only become profitable after the 2nd or 3rd order. This situation with limited foresight convinces entrepreneurs to reduce their acquisition budgets.
In the picture below you can see that even if your cost per new customer acquisition is higher than a payback concerning first order, it doesn't necessarily mean that acquisition expenses are ineffective in the long-term. In this regard, you can use customer lifetime value (CLV) and see the correlation with your Acquisition Cost.
Calculation: CPA = all costs associated with gaining a of customer