What is Cost Per Gross Addition (CPGA)
Cost per gross addition (CPGA) is a ratio used to quantify the costs of acquiring one new customer to a business. Often, the CPGA ratio is used by companies that offer subscription-based services to clients, such as wireless communication companies and satellite radio companies. Cost per gross addition is also known as "subscriber acquisition cost (SAC)" and "customer acquisition cost (CAC)," and may be shortened to "cost per add" or "gross add."
Breaking Down Cost Per Gross Addition (CPGA)
Put another way, cost per gross addition is a calculation that represents the incremental cost of acquiring one new customer. The formula for calculating cost per gross addition is as follows: the cost of equipment and sales expenses minus the revenue that equipment that equipment costs divided by the number of new subscribers [(cost of equipment + sales expenses) – equipment revenue / number of new subscribers = GPGA].
Cost Per Gross Addition (CPGA) Put to Use
The CPGA calculation is used by mobile phone service companies and other subscription-based service providers, such as streaming television providers like Netflix. These companies often will compare their own CPGA values with competing companies to compare who is better able to attract new customers at a lower cost.
Investors will look to compare a company's CPGA over a reporting period, either quarter on quarter, or year over year. Specifically, investors will be looking to see if the number is decreasing over these periods. If it is, this could be a sign that the company attracting more customers for the same level of cost or it may show that the company is reducing its costs while attracting the same number of customers.
Cost Per Gross Addition (CPGA) Example
The cost per gross addition of a wireless phone customer across all carriers is approximately $350-400 (the cost of acquiring a new subscriber). That sum covers all the costs associated with winning a new customer, which may include the following:
- Subsidized price of the phone
- Commissions paid to employees or agents
- Marketing costs
- Additional subsidies
Though the current trend in mobile phone service subscriptions is a leasing arrangement, there remains a cost subsidy to own most phones — even ones that are presented as free. This means that the mobile phone service carrier is down that $350-400 when a contract is signed and is motivated to earn that cost back as soon as possible. It is also motivated to retain a customer for as long as possible since it costs three times more to win a new customer or earn a customer than it takes to retain an existing customer — a valuable bargaining chip for those who intend to negotiate a cheaper mobile phone service bill.