CPA and ROAS: when is a number good

Two numbers that appear in every report and that say nothing without context. A CPA of 80 euros is excellent for a kitchen showroom and disastrous for a phone case webshop.

CPA: cost per enquiry

CPA stands for cost per acquisition, in practice your cost per enquiry or per lead. You work it out by dividing your ad spend by your number of conversions.

Your maximum CPA follows from your margin and your win rate:

maximum CPA = margin per customer × share of enquiries that become customers

If a customer earns you 400 euros of margin and one in four enquiries becomes a customer, then 100 euros is your break-even point. Below that you earn, above that it costs you money. That is the threshold you steer on, not the number a competitor mentions at a drinks party.

Two things undermine this sum: enquiries that are not enquiries, for instance spam form submissions that still count as conversions. And double counting, where the same enquiry arrives through two conversion actions. Check those before you believe your CPA, see checking your conversion tracking.

ROAS: return per euro of ad spend

ROAS is your conversion value divided by your ad spend. A ROAS of 4 means four euros of revenue per euro spent on ads.

The misunderstanding: a ROAS of 4 sounds good, but whether it is depends on your gross margin. Sell at 25 percent margin and four euros of revenue is exactly one euro of margin, so you are at zero. You work out your break-even ROAS like this:

break-even ROAS = 1 ÷ gross margin

At 25 percent margin that is 4. At 45 percent it is about 2.2. Only above that number are you earning from your ads. Write that break-even point down somewhere, because it is the only ROAS that is about your business.

When a number means nothing

• ROAS without conversion value. If you pass no value with your conversions, your ROAS is zero or empty. That is not a poor result, that is not a measurement. We show no ROAS in that case.
• Percentages on small numbers. Two conversions on seven clicks is not a conversion rate of 29 percent, that is coincidence with a percent sign attached.
• An average across unlike things. One CPA covering both a brand campaign and a generic campaign says nothing, because those two do not belong in the same bucket.
• A period you do not know. A number without a period is unusable. That is why every AdWarp report states the exact period, and why today does not count.

Conversions arrive later

Somebody clicks today and requests a quote next week. Google writes that conversion back to the day of the click. Which means yesterday's and this week's figures are still going up.

Anyone looking at the weekend's numbers on Monday and concluding it went badly is looking at a half-filled table. With long decision cycles it can take weeks before a period is complete. So compare full periods with full periods.

What AdWarp does with this

Your report shows per campaign type what you spent and what it returned, in money, with the period attached. Enter your margin and customer value under your goals and Warp calculates your break-even point along with it, so you can see whether a campaign sits above or below it.

If you do not, you get the figures without a verdict. We are not going to claim a CPA of 60 euros is good when we do not know your margin. As the honesty rules put it: no numbers without context.