What is a good Target CPA in Google Ads?

I’ve worked with local businesses who spend $5K per month on Google Ads and enterprise scale accounts at $150K+ per month. What do the teams behind each have in common? Both have asked me “so, what is a good Target CPA in Google Ads for us?”

Cost Per Acquisition (CPA) is a common metric businesses use to track the efficiency of marketing spend. The formula is simply Total Marketing Cost / Total Number of Acquisitions. An acquisition could be a sale, a lead or another predetermined unit of value for a business.

To get a real answer for this, you have to calculate your concrete business numbers. Unit economics is a non-negotiable piece of the Google Ads puzzle, yet it’s one of the fundamentals that teams of all sizes tend to overlook. Here’s a non-exhaustive list based on your industry.

Unit economics for lead-based businesses (trades, SaaS, professional services):

• Average job or contract value
• Sales close rate (out of 10 leads, how many turn into customers)
• Cost to fulfill (labor, subcontractors, materials if not billed separately)
• Agency management fees, if applicable

Unit economics for e-commerce businesses:

• Average order value (a.k.a., AOV or “basket size”)
• Average conversion rate
• Average profit margin
• Agency fees

For the sake of this breakdown, we’ll stick to lead-based businesses because e-commerce tends to introduce wider variations in sale price and margin based on catalog size, site experience optimization & lifetime value, among other factors.

Setting a target CPA for a local service business

I believe in operating with transparency and fact-checking the numbers regularly. Here’s an example you can follow along with.

(But if you’d rather take the easy way, here’s my calculator again.)

A plumbing company might have per-job unit economics that look like this (benchmarked figures).

Unit economics

• Residential service call: +$500
• Cost to fulfill: $250
• Close rate: 20% (assuming new rep or untrained staff)
• Agency retainer: $750
• Leads per month: 150
• Profit margin target: 25%

Step 1: Gross profit per customer

$500 service call – $250 cost to fulfill = $250 gross profit

Step 2: Agency cost per lead

$750 agency retainer ÷ 150 leads per month = $5 agency cost per lead

Step 3: Max CPA (breakeven)

$250 gross profit x 20% close rate = $50 gross profit per lead

$50 gross profit per lead – $5 agency cost per lead = $45 max CPA

Step 4: Target CPA (at 25% margin)

$500 service call x 25% target margin = $125 profit desired

$250 gross profit – $125 profit desired = $125 marketing budget

$125 marketing budget x 20% close rate = $25 CPA

$25 CPA – $5 agency cost per lead = $20 target CPA

Boosting your profits

These are real numbers, or close to what I have helped similar businesses achieve. Well within the realm of possibility.

But there are better ways (selfishly) to boost your margins than cutting your marketing agency.

If you’re consistently booked throughout the month, you could consider raising prices. Enough to make the math easier, but not so high that customers stop booking jobs.

Alternatively, many of my clients find that as volume increases, they get preferred rates with their suppliers on materials. It never hurts to ask.

It’s easy as a business owner to settle into a rhythm of leads, booked jobs and invoices, but running on autopilot indefinitely can stall your growth and keep you mired in thin margin territory.