How to determine a target CPA?

[alankingc]

When working with PPC campaigns, you would be given a target CPA to archieve. I have read many articles but found 2 variations.

One says a target CPA is basically your gross profit margin multiplies by the percentage of your spending budget then multiplies by your conversion rate.

The other one says a target CPA is the CPA at which you maximize your profitability and is determined by trials and errors and playing with different CPC variables to find the optimal CPA.

I need a solid answer because these 2 methods are completely different, perferbaly from someone working in the field.