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Everything you need to know about cost-per-action advertising
CPA advertising stands for cost per action. It is also referred to as "performance-based advertising." The “action” part can mean many things, including:
- Clicks (also known as PPC or pay-per-click)
- Leads (also known as PPL or pay-per-lead)
- Sales (actual purchase completion)
- Request for contact
- Newsletter signup
- Any other defined action
As such, CPA is a broad umbrella that can refer to many types of advertising campaigns where advertisers pay only when a defined action is delivered. The key is that the advertiser only pays for ads that elicit action from the prospective customer. This makes CPA advertising the ideal advertising model for many direct response campaigns — where the goal is to drive a specific action rather than just create brand awareness.
Should action advertising be part of your marketing efforts?
In general, a high percentage of your marketing mix should be spent on CPA advertising. By only paying for defined actions, you’ll be able to manage your advertising cost and ensure that increased costs drive increased revenue.
CPA ads work mostly on digital advertising platforms, where affiliate websites can track attribution for the actions they drive. It is less common in traditional print (newspaper, magazine) and broadcast (TV, radio) mediums. That said, it is sometimes used in traditional media, where unique phone numbers, URLs, and QR codes can be used to track attribution.
Popular CPA channels include:
- Google's AdSense or Google Ads (both PPC)
- Affiliate blogs and publishers
Campaigns that aim to create and drive brand awareness (rather than drive actions) should not be considered part of CPA. But if you consider your marketing a performance channel (i.e., actually driving business results) — and you should — you will want to:
- Determine the optimal “action(s)” you want to drive
- Establish ideal campaigns and campaign channels for CPA campaigns based on those actions
How to calculate cost per action?
It may take some experimentation to establish how much different actions cost and what channels perform best for you. The basic math is the total cost of the campaign divided by the number of actions.
For example, you might sponsor a podcast with the action defined to start a free trial (tracked with a custom code) and find that if you spend $150, you get ten signups. That means that the podcast had a CPA cost of $15 ($150/10.)
If you sponsor three different podcasts, you’ll probably see a variety of results. One might drive a lower cost of $7.50 CPA; another might only drive a $25 CPA. Over time, you would move the spend to your most efficient channels and continue to track if they can maintain the same CPA month-over-month and with the increased spend.
Common terminology in CPA marketing
The agreement an advertiser (or CPA network) strikes with a publisher or affiliate. This will outline the nature of their commission (what action they get paid for driving) as well as terms of payment, any other site requirements (e.g., rules around content quality), and other legal requirements, like exclusivity.
A third party that connects publishers (affiliates) with advertisers. Rather than every blogger or publisher approaching advertisers individually, they can join an affiliate network and apply to work with many advertisers (or vice versa). Affiliate networks also help with the tracking and measurement of affiliate campaigns.
The commission refers to the affiliate's earnings from a CPA campaign. In general, the more action they drive, the more money they will earn (though campaigns can be capped so that advertisers can maintain control of their budgets)
The conversion rate is a calculation of the amount a campaign “converts” website visitors into customers.
For example, one publisher might drive 300 visitors to your site. But if only 3 of those 300 visitors become customers, the conversion rate is only 1%.
On the flip side, another publisher might drive far fewer visitors - say 100. But if 3 of those visitors also become customers, you’ve got a much higher conversion rate of 3%.
This refers to the cost of a form of CPA campaign where the action is a click (usually on an ad or link). The cost per click is the rate the advertiser will pay the affiliate for each click they drive. This is calculated by the campaign total divided by the number of clicks/visitors received. CPC campaigns are the most common form of cost-per-action advertising.
This refers to the cost of a form of CPA campaign where the action is capturing a lead (usually securing an email address or other contact information). The cost per lead is the rate the advertiser will pay the affiliate for each lead information they capture. This is calculated by the campaign total divided by the number of leads driven.
PPC is a type of campaign where the advertiser pays for each click on the ad or link. PPC is the model used by Google's AdSense or Google Ads.
PPL is a type of campaign where the advertiser pays for each lead obtained. This might be the number of ‘form completes’ (where prospects supply contact information) on a sales landing page, for example. This generates a list that your sales team can then call upon to see if they are interested in your product or service.
A testing and tracking mindset is key
A “testing and tracking” mindset is key to running successful CPA campaigns. While it is important to stay on top of which channels perform best, it’s also good to consider the “why” and avoid making whiplash decisions.
For example, that podcast that performed worst of the three you tested: You might consider whether the script is as strong as the best-performing script before you jump ship. There may also be seasonal changes to different channels.
Other factors, like creating unique landing pages (rather than driving all traffic to your home page) or including voucher codes, can greatly impact the number of "user completes" of a specified action.
Just like buying and selling stocks (though a lot lower risk), you want to allow for some amount of fluctuation and hold your nerve a little. Give each campaign some time to see how the action cost fluctuates over time. The more data you collect, the more informed (and less reactive) your decisions will be.
Managing your advertising cost/CPA campaigns can be a lot of work
If you’re a business owner, running CPA campaigns can be a nice way to get your business name out there. While launching a few campaigns is relatively easy, managing a full roster of campaigns and affiliates can be a full-time job.
Indeed, there are many steps involved in running these campaigns, including:
- Choosing channels or building affiliate relationships
- Developing campaign collateral (copy, design, scripts, etc.)
- Setting up tracking so you can provide reports to your affiliates
- Budget management
- Analyzing and optimizing your campaigns
Because of this, many business owners choose to work with third parties or CPA networks to manage their marketing spend. A CPA network acts as a bridge between the advertiser and the publisher. They will help vet publishers, so you don’t inadvertently sponsor a shady podcast or blog.
Using a CPA network allows the business owner to outsource and automate a lot of their marketing activity so that they can focus on serving all those leads that flood in! That said, it is worth maintaining an ongoing check-in with your rep, so you know they are working hard for you and managing your budget effectively!
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