Modern Marketing Metrics and Measurement: CPA Versus True ROI


 

When it comes to marketing KPIs, many performance advertisers hang their hats on cost per acquisition (CPA). Few realize that they may well be undervaluing their overall return on marketing investments by doing so, however.

CPA is typically calculated by dividing the total amount of customers won or sales made (or some other proxy) by the amount of money it took to generate those wins. This formula sounds simple enough, but depending on the circumstances, the traditional method of generating a CPA figure could inadvertently also be including duplication, inefficiencies or non-transparent margins in that calculation.

Traditional CPA calculations fail to take into account the complexity of today’s multi-touch, multi-channel interactions between a brand and its customers. It is impossible to assess each “conversion” independently–or in the context of a single “winning” channel or campaign–when in reality a consumer has been exposed to multiple forms of media in a specific sequence over a set period of time. Calculating CPA presents a one-dimensional view of what likely is a far more sophisticated cross-channel marketing and advertising strategy.

Separated from a wider strategic context, CPA becomes an arbitrary metric. If an advertiser working with multiple programmatic platforms and cross-channel solution providers asked one partner (responsible for just one channel and/or campaign) to match an average CPA derived from all campaign and channel activities, it is unlikely that the single partner would be able to achieve the same CPA.

In the last few years the commoditization of digital, and increasingly traditional media channels, have provided advertisers with an alternative to econometrics. Previously the cost and complexity of econometric marketing mix modelling had been prohibitive for all but the largest of advertisers due to limited budgets.

Today, modern buying platforms are now multi-channel and are able to consolidate differing metrics from different channels into meaningful, transparent, scientifically-validated “apples-to-apples” reporting. And advertisers are increasingly using sophisticated path analysis tools to test and measure exactly how many actual sales their partners are able to realize on their behalf, and where there are efficiencies to be had. This consolidated approach has enabled major advertisers to realize both massive savings and huge increases in overall performance.

Using path analysis tools, media performance and business performance are aligned. Having a single platform with full visibility across all media spend allows advertisers to see through the silos that so often obscure value and confound holistic measurement attempts. The dynamism of the digital ecosystem is such that consolidated approaches can be made to test theories and measure real results in fully controlled micro-environments, without the need for siloed CPA calculations.

Over the coming years, it seems likely that the realm of digital will continue to grow and expand as traditional forms of media grow less popular and “Television” advertising continues to merge and blur into Video Everywhere. In a world where measurement of all media is becoming possible, innovative advertisers stand to gain a competitive advantage over their competitors by working smarter, not harder, through multi-channel data science and analytics.

For more on multi-channel data science and analytics, check out our most recent webinar with the Mobile Marketing Association (MMA) titled, “3 Tips to Make Mobile Marketing Better Through Data Science.”