What is an Allowable CPA?

Allowable CPA, or Allowable Cost Per Acquisition is the biggest indicator of how well a business can scale an offer.

As a vendor, you pay to drive traffic (eye balls) to your product. You rent email lists, run ad campaigns on Yahoo or Google, or pay special partners to promote your offer in a variety of other unique ways (affiliates, videos, interviews, social media, etc.). But in most cases an advertiser is paying for each and every eyeball that sees their product.

Let's say an advertiser spends $5,000 to send a dedicated email to a list that they've rented. After all the dust settles they generate 100 orders from that email. The cost per acquisition would be $50.

Here is the math: $5,000 / 100 orders = $50 CPA

Now what’s the difference between a CPA and an Allowable CPA?

CPA = What is actually spent to acquire the customer. Again, after dust settles what did the advertiser spend. Sometimes you can predict this, but every campaign is a gamble.

Allowable CPA = What you as a business owner have decided you are willing to pay to acquire a customer. Most businesses look at how much the average customer is worth after three or six months. This is the LTV (lifetime value) of the customer.

As a business owner, you then decide what is “allowed” to be spent to acquire a customer. 

Every business is different. Some businesses want to breakeven on ad spends in 6 months. Others want to break even in 3 months.

In this example, let's say an advertiser wants to breakeven on ad spend in 6 months. This means that the more a customer is worth at that 6 month mark the higher the allowable CPA is for that product.

Why do some products (physical or digital/info products) have higher lifetime value for their customers than others? Because they probably have better backend products that new customers are purchasing and/or they have lower refund rates. Those products are doing a better job retaining and monetizing customers.

So in a nutshell here is why allowable CPAs are so important: The higher the allowable CPA, the more a business is able to pay affiliates and to spend on advertising to acquire new customers …which translates to…the easier it is to acquire new customers.

Higher Allowable CPA = More New Customers

For more information on how to track LTV in your BuyGoods dashboard, go here.