What is Target CPA? How to Use it to Increase Revenue + Pro Tips

Target CPA (or cost per action) is an automated bid strategy that allows advertisers to set a cost for each desired conversion action. Learn how our team of Google Ads experts uses it every day to grow ROI.

AI is a contentious topic these days – particularly in the digital marketing world.

While some get visions of the Terminator, others are wooed by the promise of automation and efficiency.

Google Ads smart bidding strategies use machine learning to give advertisers an edge in the ad auction. The flexibility of optimizing based on goals in real-time allows for strategic advantage and continual improvement in a fast-paced world.

Let’s explore target CPA, the automated bidding strategy option in Google Ads. We will review how to set the right CPA for your business and how to continue to optimize your ad strategy.

What is target CPA?

Target CPA (known as target cost per action or target cost per acquisition) is a smart bidding strategy available in Google Ads and Microsoft Advertising.

Target CPA works by letting you set your goal cost per acquisition (CPA), and it optimizes your campaign for this CPA. While your CPA won’t always be at goal, it will work to ensure the average cost is at your target.

Target CPA (known as target cost per action or target cost per acquisition) is a smart bidding strategy available in Google Ads and Microsoft Advertising. (Image:Unsplash)

How to set realistic target CPA goals

Setting a realistic target CPA is essential to make sure that you get the full potential out of this strategy.

You may want to aim for a low CPA, as it seems like the better option for your budget. However, it’s important to also align the target with the value a conversion brings to your business. This helps you keep every single campaign sustainable and profitable.

You want to strike the right balance, and this is where the expertise of marketers comes into play. A well-strategized target CPA will help you spend more efficiently, improve your return on investment (ROI), and streamline your advertising strategy.

When is it time to use a target CPA strategy?

”While Google recommends a maximize conversions strategy without a target CPA, you might be ready to add a target to a particular campaign if you have a variable conversion value,” Ian Dawson, HawkSEM’s senior SEM manager explains.

“Adding the target CPA to the bidding strategy can ensure that the overall average cost per acquisition is within the average values of each lead or conversion.”

How to set up target CPA

Setting up your target CPA or tCPA bidding strategy is straightforward.

Here’s a quick guide:

1. Log in and select your campaign: log into your Google Ads account and choose the campaign or ad group where you want to implement target CPA.
2. Navigate to campaign settings: within the selected campaign, go to the “settings” tab.
3. Access bidding options: in the “bidding” section, click on “change bid strategy.”
4. Choose target CPA: from the available bidding strategies, select “target CPA.”
5. Set your target CPA: enter your desired cost per acquisition, aligning it with your campaign goals.
6. Consider enhanced CPC: optionally, enable “Enhanced CPC” to allow Google ads to adjust your manual bidding dynamically.
7. Save changes: once configured, save your changes.

How do I use the target CPA bidding strategy?

Leveraging target CPA effectively requires a strategic approach in both planning and execution.

The first step is to understand your campaign objectives and the value of every conversion.

(Image: Adobe)

You must then align these goals with your overall marketing strategy, considering factors such as customer lifetime value (CLV) and profit margins.

When you integrate target CPA into your broader campaign strategy, you can optimize not just for conversions but for conversions that contribute most meaningfully to your bottom line.

Once you have your target CPA chosen, it’s not a “set-it-and-forget-it” strategy. You will want to regularly review your campaign performance, keep an eye on conversion data, and adjust your target CPA accordingly.

Additionally, you can consider segmenting your audience and adjusting bids based on specific criteria. You can look at segments such as demographics or device usage. When you tailor your approach, you can maximize the impact of target CPA on different audience segments.

How to calculate a good target CPA

As we previously mentioned, it can be tempting to set a low CPA when you first approach this automated bidding strategy. But it’s often not the best strategy. So how can you figure out what is the right CPA for your business?

Start by considering the factors influencing tCPA. These may include the value of a conversion, profit margins, and the overall marketing strategy.

A data-driven approach is the best way to go — analyze historical campaign data to identify patterns and trends. Then, use additional tools, such as those within Google Ads to gain further insights into conversion rates, customer lifetime value, and the competitiveness of your industry.

At HawkSEM, we don’t only make use of search engine data. We enhance our campaign strategies with ConversionIQ, our proprietary tech that helps us understand and optimize our target CPA campaigns for conversions.

The science behind setting the right target CPA lies in aligning this number with your broader business objectives. And the more data you have, the easier this becomes.

Consider the lifetime value of a customer and the potential impact of a conversion on your bottom line. For example, an ecommerce site that sells household items will generate less profit from each conversion than a car dealership that leases high-end vehicles such as Mercedes and BMWs.

So, the latter can set a higher tCPA and the former a lower one.

A real-world example of calculating target CPA

Dawson suggested the best approach is to start with a campaign with a manual CPC bidding strategy before moving to a maximize conversions strategy.

“In my experience, a target CPA would be set and calculated once a campaign has already evolved through a few bidding strategies,” he says.

He suggests “Reviewing the CPA for each strategy’s time period to help choose my tCPA. It is also important to know your account’s cost per acquisition versus the return on that cost, as that will play a role in determining your tCPA.”

Why is my target CPA so high?

If you’re now looking at your target CPA and thinking it’s too high for the value your customers bring, there could be several reasons for that.

But before you start panicking, it can be a good idea to understand what the average CPA is across Google Ads. The average CPA across all industries is $51.50 for search and $47.81 for the display network.

That might seem high for some of you and low for others. That’s because CPA also changes dramatically across industries. For example, Internet & Telecom has the highest average CPA in the Display Network at a staggering $131.78. In contrast, Dating and Nightlife has the lowest at $8.52. That’s over 15 times lower.

But if your target CPA is much higher than you want it to be. There could be a few reasons for that.

1. Competition intensity

In highly competitive industries, the cost of acquiring customers in any digital marketing channel can skyrocket. If you’re operating in a crowded space where multiple advertisers are fighting for the same audience, this can drive up the cost per click (CPC) and, consequently, your target CPA.

2. Ad quality and relevance

Google Ads prioritizes ads that provide value to users. If your ad relevance and Quality Score are low, Google can penalize your campaign by charging a higher CPC. This, in turn, contributes to a higher tCPA.

Ensure your ad creatives, landing pages, and targeting align seamlessly to improve relevance.

3. Seasonal fluctuations

Industries often experience seasonal variations in demand, affecting advertising costs.

If you’re running ads during peak seasons, expect higher competition and increased costs.

4. Ad placement and network selection

The choice of ad placements and networks can significantly influence costs. Premium placements or networks may command higher costs but might not always translate to better performance.

Review your placement and network choices and look at what optimizations you can make to find the right balance between visibility and budget.

Should I use a target CPA?

The decision to use target CPA as your bidding strategy will depend on several factors. It’s not always the best bidding strategy for every business. But in some cases, it is.

“Using the tCPA bidding strategy is a great way to help optimize your bids to get the most conversions while limiting their cost and avoiding a negative ROI,” explains Dawson.

TCPA can be a game-changer, but it’s not a one-size-fits-all solution. Consider the following scenarios to determine if it aligns with your campaign objectives:

1. Stable conversion history

If your campaign boasts a stable and consistent conversion history, target CPA can be highly effective. This bidding strategy relies on historical data to make accurate predictions, so having reliable historic conversions can improve your results.

When you create a new campaign with smart bidding strategies, it will have a learning phase. This is where the AI learns how to maximize the number of conversions for your daily budget and the more historical data you have, the faster this passes.

2. Clear understanding of your conversion value

If your business has a clear understanding of the value of each conversion and has historical conversion tracking you may be well-suited for target CPA.

This is easier for some businesses to calculate than others. For example, if your business sells luxury wedding dresses, you typically will only sell your customers one product over their lifetime. This means it’s easier to calculate the average profit you make from a conversion.

However, if you are a coffee shop where customers will come over and over again, buying coffee and pastries, while others will only visit once while they’re in town, it is more complex to understand the value of a conversion.

When you know the worth of a lead or sale it allows for more precise bidding. You can then ensure that the CPA aligns with the perceived value of the conversion.

3. Well-defined marketing goals

When your marketing goals are well-defined and revolve around specific conversion objectives, target CPA shines as a bidding strategy.

Whether you’re aiming for lead generation, product sales, or another conversion metric, this bidding strategy allows you to tailor your efforts to achieve those specific goals.

If you don’t have well-defined market goals related to conversions, it might not be the right choice. It will be harder for you to gain value from this strategy if you are more focused on targets such as brand awareness.

4. Efficiency and cost control

If you are part of a marketing team that is looking for a way to simplify your ad management this could be the solution. For businesses looking to maximize efficiency but maintain control over advertising costs, target CPA is a strategic choice.

It automates bid adjustments to achieve the most conversions at or below the specified cost. It provides a level of control that allows you to implement and change strategies but it also brings automation that can save time and free up your team.

5. Competitive industries

In highly competitive industries where securing conversions is challenging, target CPA can be a competitive advantage.

Its real-time bidding adjustments enable you to keep your bidding agile in response to market changes. This can enhance the likelihood of being able to outperform competitors.

Strategies to master target CPA & maximize conversions

For marketers well-acquainted with target CPA, you may want to further optimize your strategy.

Here are some advanced tactics that go beyond the basics and will help you bet a better return on ad spend (ROAS) from your tCPA campaigns.

1. Segmentation for precision

Segment your audience based on factors such as demographics, device usage, or geographic location. When you tailor your target CPA to specific segments, you can optimize bids with greater precision. This ensures that your ads resonate more with defined target audience groups.

2. Use Target Impression Share

Complement target CPA with Target Impression Share to control the visibility of your ads.

This strategy allows you to prioritize ad placement on the search results page. You then ensure your ads are prominently displayed when it matters most.

Balancing tCPA with Target Impression Share can lead to a great ROAS because you reach your audience where they are most likely to convert

3. Leverage smart bidding signals

Embrace the full power of Smart Bidding by incorporating additional signals beyond historical data.

Integrate signals like user location, device type, and time of day to enhance bidding decisions.

By leveraging a broader spectrum of data, you give the algorithm more information to make and adapt bid adjustments.

4. Experiment with seasonal adjustments

For businesses affected by seasonal fluctuations, experiment with seasonal adjustments in your target CPA strategy.

Anticipate demand shifts during peak seasons and proactively adjust your tCPA to maximize clicks and conversions at lower competition moments.

5. Implement Target ROAS in tandem

Consider incorporating Target ROAS alongside target CPA for a more well-rounded approach.

While tCPA focuses on acquisition cost, Target ROAS emphasizes revenue.

When you use both strategies, you create a symbiotic relationship that optimizes both cost efficiency and revenue generation.

6. Dynamic Search Ads integration

Another integration to consider is Dynamic Search Ads (DSA).

DSAs automatically generate ad headlines and landing pages based on the content of your website.

This approach can enhance your reach and allow your ads to adapt to a wider range of search queries.

7. Monitor cross-device performance

In today’s world, where many people have a phone, tablet and desktop or laptop, it’s a good idea to closely monitor the performance of your target CPA across various devices.

Analyze conversion rates, user behavior, and the impact of device-specific bid adjustments. Adjust bids accordingly to maximize performance on each device. You may find that while customers do the research phase on their desktops, the majority of your purchases come from mobile. You can use this information to adjust your strategy accordingly.

The takeaway

Mastering target CPA is an ongoing process. While it involves automation, and can save you time, you do need to keep monitoring it. A good strategy requires precision, adaptability, and strategic refinement.

Once you have a solid tCPA in place, you can then move on to using more advanced strategies. You can combine it with Target ROAS, and Dynamic Search Ads and look more closely at your performance across devices and other segments.