The Basics of CPA Marketing
What is CPA Marketing?
We’ve already touched very briefly on the concept of CPA marketing but what does this term mean in detail?
To start with, let’s ask the simple question:
What is an ‘Action’?
What is an ‘Acquisition’?
Another term that can be used synonymously with these two is ‘conversion’. And if you’ve ever heard of a ‘call to action’, then this basically describes the same thing.
A call to action is a call to do the thing you want your audience to do, which in the vast majority of cases is to buy a product or sign up to a mailing list.
So with CPA marketing, you would first set up your goal or your action and then you would set up tracking so that you only paid when that thing happened.
So for instance, if someone were to click on your advert, then get taken to your website and then buy your product, you would get charged. But if they were to click on your advert and then leave, you wouldn’t get charged anything at all.
As you might imagine, this is a rather positive situation for you as an advertiser.
You see, a click on its own does not guarantee any value for you. If someone clicks on your PPC advert, goes to your website and then is unimpressed with your products and services on offer, you’ll have paid for that click and received nothing in return.
On the other hand though, if you are only paying for each action, then you will be earning money for every time someone clicks on the advert. So if you can work out that you get $20 for every purchase of your e-book and you’re paying only $1 for your CPA – then you know that every click on an advert will earn you $19.
This works very well for you because you know you’re getting money out of your advertising campaign and it works well from the advertiser who is still getting paid for your business.
Now here’s the thing:
CPA marketing doesn’t always mean that you pay only when someone buys your product. In fact, that is relatively rare. Instead, with CPA you will still normally pay per click. That’s what makes this still a form of PPC advertising (other than the simple fact that the two are very similar and it’s convenient to describe them with the same term).
So if you’re paying per click, how is that CPA at all? Well basically, the advertising platform will give you the ability to break down the information and to see when you’re actually gaining an acquisition.
What this means is that you can then look at the percentage of clicks that are resulting in an acquisition and you can see what you’re paying for each of those clicks.
So if you’re paying $1 for every 100 clicks, and 1 in every 400 people buys your product, then you now know that you have a cost per action of $4.
Is this a concrete and reliable number? While you might worry that this figure is based purely on trends, for any big business that is going to be good enough. If you’re getting thousands of clicks a day and that average is calculated on that data, then it is almost always going to hold true.
Sure, you will sometimes see a little deviation from this average as the cost goes up and down. But overall it’s all going to even out over the long term.
This is in fact just the same way that a casino works – they play the odds but because those odds are on such a large scale and they are slightly tipped in favor of the house, they can still accurately predict their revenue.
How Does CPA Work?
So now you may be wondering how CPA would work. What is this black magic that allows an advertiser to know whether or not someone has bought your product after leaving your website?
This then allows a website or app to identify that user and to show them their preferences. Cookies are what allow you to stay automatically logged into Facebook for instance.
And cookies are also the reason that the adverts that show up in the sidebar on Google are eerily close to all the things you’re interested in. Been looking at holidays? Then a cookie will be stored by that website and they will then work with their advertising partners to show you hotel and flight adverts!
In the case of CPA, a cookie is used to look at how the person is that is clicking on your advert. Then, if the user with that identifying information should also click to buy a product on your website, they will have been tracked and the information will be fed back to the advertising platform.
In a scenario where you only paid for each acquisition, you would then pay for those clicks only. More likely, the information would be fed back to your overall metrics along with all those clicks that didn’t yield a result and you could then use this to calculate your CPA.
So who are the advertisers and publishers? Who earns from this?
We’ll look into the different CPA providers (called platforms) in more detail later but for now, suffice to say that the platforms tend to be run by big companies and websites such as Google and Facebook.
If you use CPA through Google or Facebook, then your advert will be likely to appear on Google or Facebook respectively. In this case, it is of course also that company that will be paid for each click.
In other cases, it is possible to use CPA marketing across multiple websites. Google AdWords is Google’s advertising platform that shows ads right on its search pages, but Google AdSense is a platform that shows adverts on the websites of participating publishers.
So for instance, if you’re someone who is selling a protein shake, you can use Google AdSense to have your adverts appear on websites about fitness. When you pay for your clicks/acquisitions, that money will then go to Google and the publisher.
What is Scrubbing and Shaving?
When paying only for your acquisitions/leads rather than per click, you may need to know what Scrubbing means that advertisers – you – don’t have to pay for invalid or duplicate leads.
So if you’re paying for every person who signs up for your newsletter, then scrubbing means looking for instances where the same person has signed up twice, or where they have signed up with a fake e-mail.
You then need to go back and not pay for that data. Likewise, if someone were to ‘buy’ your product but their card was then declined, you would again need to scrub that data to ensure you were really only paying for each acquisition. Here is where things can sometimes get a little complicated.
Meanwhile, shaving means that the advertiser is trying to be more selective about their leads and scrubbing leads that should be valid. This, of course, is unfair on the publishers.
CPA Versus Other Forms of Marketing – Who is PPC For?
Compared with regular PPC marketing, CPA is much more goal-oriented and gives you a way to calculate the ROI from each and every click.
This makes a lot of sense if the page you’re sending your viewers to is one where they can buy products. They will click on the link and from there they might buy your product, sign up to your service or otherwise spend some money with you.
CPA also makes a lot of sense when you have another clear target in mind. The other obvious example here is getting people to sign up to a mailing list. In this scenario, CPA makes a lot of sense because again you’re paying for that goal that you hope to achieve.
While you won’t profit in the short term from people signing up to your list, you should be able to monetize those e-mails later and thereby you’ll be able to eventually get your returns. It’s a long process but the end result should be the same.
But there are situations where CPA doesn’t make as much sense or isn’t as important. For instance, sometimes advertising will be used simply to increase awareness of a product or a brand and in that case the target can’t really be measured.
If you think of the advertising that you will often see on TV, then a lot of it won’t have any clear ‘call to action’ at the end. In other words, they don’t tell you how much the product costs, or where to buy it… they just make it look good.
The idea here is to create a positive association and/or awareness for a product in your mind. Then, when you are out shopping and you see that chocolate bar/detergent/toothpaste, the hope is that you’ll be slightly more likely to pick it up.
Increasing brand awareness has much more value than that though and will continue to reward the companies that invest in that marketing for years or decades to come.
If your objective is similar – simply to get people to know the name of your business – then CPA might not be the best choice. That is simply because you can’t directly measure how ‘aware’ someone has become of a brand, or how impressed they’ve been by an advert.
It’s worth noting though, that in order to make a brand a household name through conventional advertising, you would need to sink a huge amount of money into your campaign. This is likely more of an investment than most small businesses could afford.
CPA marketing, on the other hand, is suitable for smaller businesses because you will know that you’re making direct returns on all your advertising, thus reducing the amount of time until you break even.
That said, the more money you can invest into your marketing, the more accurate the data describing your CPA will be. Remember, this is based on averages.
CPA vs Affiliate Marketing
The savvy internet marketer reading all this may have noticed that CPA actually has a similarity with another type of promotion: affiliate marketing. Indeed, CPA is somewhat the missing link between PPC and affiliate marketing and has many of the advantages presented by each.
Affiliate marketing is basically the process of paying commission to marketers that promote your product. So say you have an online course that you’re promoting or an ebook.
With affiliate marketing, you could give out special URLs to marketers that they can use to refer sales to you. From here, you would then automatically give them a percentage of every sale they brought in.
If they were to earn you five sales, then you would pay them something between 40-60% for each of those sales (the higher the percentage, the more people will likely work to drive leads your way). Likewise, you can also use affiliate marketing to pay people for generating leads on your behalf.
Affiliate marketing then is in fact a form of CPA – because you’re only paying out each time someone actually makes you a sale or a lead. Again, you are paying per action or per lead.
There are subtle differences between traditional forms of CPA and affiliate marketing but we will consider both options throughout this guide. As a general rule though, affiliate marketing tends to mean giving away a larger cut of your profits but for a more guaranteed and steady ROI.
It also gives the affiliate markers the freedom to promote your product as they see fit, as opposed to publishing an advert that you designed. Generally affiliate marketing works better for higher ticket items and for companies that are less concerned about presenting a particular image.
There are a lot of options to play around with here and finding the right system is one of the most important steps in ensuring that your campaign is successful. That’s what we’ll be looking at in the following chapter…