How to calculate a realistic Target CPA
Your Target CPA should be derived from your economics, not from what sounds like a good number. I see accounts with CPA targets that would make the business profitable at zero margin, and accounts with targets so ambitious that the algorithm cannot find enough conversions to operate.
Target CPA is the cost per acquisition you are telling Google to aim for. Set it too low and the algorithm restricts itself severely, generating very little volume. Set it too high and you might get plenty of conversions at a cost that does not make commercial sense. The right target is derived from your actual business economics.
Start with margins and conversion rate
What is your average order value or average client value? What is your gross margin? What is your close rate from lead to client? These three numbers give you the maximum you can sensibly pay for a paid search conversion.
Example: average contract value £2,000. Gross margin 60%. Close rate from lead 25%. Maximum you can pay per lead while still being profitable: 25% of £2,000 x 60% = £300. That is your maximum viable CPA. Your target should be below that - typically 50 to 70 percent of maximum - to allow for margin, overhead, and the inevitable variation in lead quality.
Benchmarking against actual performance
If you have historical Google Ads data, your actual historical CPA is the most useful starting point. Do not set a Target CPA significantly more aggressive than your historical average without a specific reason why performance should improve dramatically. The algorithm needs to be able to find conversions at your target. If your historical CPA is £80 and you set a target of £40, you are asking the algorithm to do something it has not demonstrated it can do. Start at your actual CPA and tighten gradually as performance demonstrates that a lower target is achievable.
Adjusting over time
Once your smart bidding campaign has built a month of data, review actual CPA against target. If actual CPA is consistently 20% better than your target, your target is too loose - you could push it lower and capture similar volume at better efficiency. If actual CPA is consistently worse than your target, the target is too aggressive - either relax it or accept lower volume. Target CPA is a dial to adjust, not a set-and-forget input.
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