A detailed explanation of the CPA concept for subscription products!

[ishanijerin1]

A detailed explanation of the CPA concept for subscription products!
Hello, this is Umehara from Eye Trigger!

In recent years, various subscription services have become popular. How do you set KPIs for ad delivery when it comes to subscription products or repeat shopping? If
multiple purchases are assumed, how should you set the CPA?

This time, I will introduce the concept of CPA for subscription products.
I hope this will be helpful for those who are business owner database can help about to start managing subscriptions or repeat products.

table of contents

How to calculate CPA
Average duration, average purchase frequency, average purchase price...how can we increase each indicator?
Conclusion
How to calculate CPA
Generally speaking, the maximum acceptable CPA can be calculated using the following formula, assuming you set the upper CPA at a line that will not result in a loss.

Upper limit CPA = average purchasing price × profit margin

However, if you have a subscription product, your customers don't just make one purchase.
Let's add the "average duration" and "average purchase frequency" to the formula above.

Upper limit CPA = Average duration × Average purchase frequency × Average purchase unit price × Profit rate

In this way, it is possible to break down the indicators when considering the maximum CPA.
The actual calculation is as follows:

[Example] Calculating the maximum CPA for a subscription product

Average duration: 6.5 months
Average purchase frequency: 1 time/month
Regular subscription price: 15,000 yen/month
Profit margin: 20%
Half price for first purchase
Maximum CPA = (6.5 months – 0.5 months*) x 1 time x 15,000 yen/month x 20%
　　　　 = 18,000 yen

* Reduction for first purchase at half price

In this example, the maximum CPA is 18,000 yen, so even if the target CPA is higher than half the initial purchase price of 7,500 yen, you can still generate ongoing profits.

In this way, by breaking down CPA, it is possible to set KPIs that include customer lifetime value (hereinafter referred to as lifetime value).

Please note that if you set a target CPA based on lifetime value, you will be in the red for several months after acquisition, so you need to consider the acceptable range before setting it.