What is Target CPA? How to Use it to Increase ROI

Target CPA (cost per action) is an automated bid strategy that allows advertisers to set a max cost for each desired conversion action. But choosing the right cost can be tricky. Here’s how to set the right tCPA for your PPC campaigns.

Whether you manage a small business or run large-scale campaigns, maximizing your ad spend to drive the most value is a top priority.

Target CPA (cost per acquisition) is a powerful bidding strategy in Google Ads that can help advertisers reach that goal.

As an automated bidding strategy, tCPA allows you to tell Google Ads how much you’re willing to pay for a conversion action. Google uses machine learning to automatically adjust bids accordingly.

Below, HawkSEM Senior SEM Manager Ian Dawson walks us through how to set the right CPA for your business and optimize your ongoing strategy so you can hit your conversion goals.

What is target CPA?

Target CPA is a smart bidding strategy that aims to get as many conversions as possible at an average set cost.

Also known as “target cost per action” or “target cost per acquisition,” target CPA allows the advertiser to set a maximum amount they are willing to pay for a conversion action (like a sign-up, sale, or download).

The campaign automatically adjusts bids for each ad auction to best achieve that goal while remaining within the set bid limits.

While each conversion action may cost more or less than the set goal, it works to ensure the average cost hits your target.

The trick is to calculate a target cost that delivers a high enough conversion volume at a profitable cost. (Image:Unsplash)

How does target CPA work?

After launching your new campaign with smart bidding, it will enter the learning phase.

This is where Google gathers historical data while experimenting with running your ads in different contexts (such as different times of day, locations, and audiences based on browsing history).

These test runs help the campaign gain further insights on how to reach your target CPA goals.

For the machine learning to work, you must have proper conversion tracking set up, as well as data from previous manual CPC bidding campaigns to provide a starting point.

The learning phase lasts for one week to one month, during which results will fluctuate.

Eventually, the campaign will learn how to make the best bid adjustments based on real-time signals — bidding higher when it believes an audience is more likely to convert and lower when they are less likely.

If you set an aggressive conversion target (lots of conversions for a lower cost), you’ll yield fewer conversions. But if your set target CPA is higher, Google will be more successful in finding those conversions.

In other words, the trick is to calculate a target cost that delivers a high enough conversion volume at a profitable cost.

What should my target CPA be?

To calculate the best target CPA for your business, you’ll need to understand your campaign objectives and the value of every conversion.

Here are things to consider to calculate the right tCPA:

1. Determine the true value of a conversion

Your target cost should closely match the true value of a conversion to your overall business. Consider the lifetime value of a customer and the potential impact of a conversion on your bottom line.

2. Start with a manual cost-per-click (CPC) campaign

Let your campaign learn from a manual campaign before moving to a maximize conversions strategy. Your manual campaign data will inform the target CPA you should set for your smart bidding campaign.

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

3. Review historical data

From there, “review the CPA for each strategy’s time period to help choose your tCPA,” Dawson explains. “It’s 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.”

Alternatively, you can review your average CPA over the last month and set your target CPA slightly higher so the algorithm has some wiggle room to learn before lowering your target cost.

4. Stick to your budget

While your target CPA should be set slightly higher than your true conversion value to start, make sure it remains within your daily budget and overall marketing goals.

5. Use tools to gain further insights

Tools within Google Ads can help you understand your 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.

How to set up target CPA

Setting up your target CPA 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

When to use target CPA

“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,” says Dawson.

“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.”

Consider the following scenarios to determine if they align with your campaign objectives:

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.

Clear conversion values

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

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

However, for a coffee shop with regular customers and spur-of-the-moment customers, it’s more complex to understand the value of a conversion.

When you know the true value of a lead or sale, it allows for more precise bidding.

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.

Efficiency and cost control

For businesses looking to maximize efficiency but maintain control over advertising costs, target CPA is a strategic choice.

Because tCPA 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 while saving time.

Competitive industries

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

Its real-time bidding adjustments allow you to keep your bidding agile in response to market changes. This can enhance the likelihood of outperforming competitors.

Ensure your ad creatives, landing pages, and targeting align seamlessly to improve relevance. (Image: Adobe)

Why is my target CPA so high?

The average CPA across all industries is $48.96 for search and $75.51 for the display network.

That might seem high for some and low for others because CPA also changes dramatically across industries.

However, if your target CPA is much higher than you want it to be, there could be a few reasons.

1. High competition

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 the most 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

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.

Expert strategies to master target CPA

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 to help you get a better return on ad spend (ROAS) from your tCPA campaigns.

1. Segment 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, ensuring they are prominently displayed when it matters most.

3. Leverage smart bidding signals

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 with 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.

The takeaway

“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.

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.

Don’t have the bandwidth? We got you. Reach out today for your free, custom marketing plan.

This article has been updated and was originally published in January 2024.