Hello Ad-Venturers!
One of the most common questions we get from our clients is: “Why does my Cost Per Acquisition (CPA) increase when I boost my ad budget?” It’s a valid concern, and today, we’re diving deep into the answer.
Imagine a spectrum. On the far left, you have the easiest-to-acquire customers, and as you move to the right, the difficulty in acquiring them increases. This spectrum represents the various customer groups based on acquisition difficulty, especially for Direct-to-Consumer (D2C) brands.
1. Urban Digital Natives:
- Location: Primarily in cities.
- Spending Habits: High disposable income.
- Purchase Behavior: Heavily influenced by social media and primarily make purchases through these platforms.
2. Online Window Shoppers:
- Browsing Habits: Extensive online window shopping.
- Purchase Behavior: Require multiple touchpoints before they’re convinced to make a purchase. They’re price-sensitive and convert occasionally.
3. Traditional Brand Loyalists:
- Brand Preference: Have a soft spot for established brands.
- Online Behavior: Limited online buying but are open to exploring new brands.
- Values: Trust and product reliability are paramount.
4. Offline Purists:
- Location: Often in remote areas or deeply rooted in offline shopping habits.
- Online Behavior: Highly skeptical about online purchases.
- Shopping Preference: Primarily rely on brick-and-mortar stores.
When you initially set your ad budget, you’re likely targeting the Urban Digital Natives and some of the Online Window Shoppers. They’re easier to convert, and thus, your CPA remains low. However, as you increase your budget, you start reaching out to the more challenging segments of the spectrum, like the Traditional Brand Loyalists and even the Offline Purists. These groups require more persuasion, more touchpoints, and often more time before they convert. This increased effort naturally results in a higher CPA.
Key Takeaway:
It’s essential to understand that as you scale your ad budget, you’re not just reaching more people; you’re reaching different types of people. And while it’s tempting to continuously increase ad spend in the hopes of acquiring more customers, it’s crucial to monitor CPA and understand the customer segments you’re tapping into.
Stay tuned for more insights next week, and as always, happy advertising!