The term ‘cost per action” (CPA) is an online advertising digital marketing strategy that allows an advertiser to pay for a particular action from a potential customer. Carrying out a CPA campaign is relatively low risk for the advertiser. This is because payment only has to be made when a specific action takes place. CPA campaigns are most commonly associated with affiliate marketing. another name for ‘cost per action’ is ‘cost per acquisition’ (CPA).
In the CPA model, the publisher shoulders the maximum risk as income is dependent on decent conversion rates. Owing to this, selling on a CPA basis is not as attractive as selling ads on a CPM (cost per impression) basis. Some publishers who have extra inventory will often fill it with CPA ads.
The efficacy of advertising inventory purchased by an advertiser can be gauged using effective cost per action or eCPA. The eCPA shows the exact amount the advertiser would have paid if it had bought the inventory on a cost per action basis. Technically speaking, a CPA deal could involve any action, not just a customer acquisition or sale. However, in practice, CPA means a sale. When the action desired is a click, the sales methodology is referred to as CPC, and when the action is a lead, the sales method is referred to as CPL.
Comparing CPM and CPA
When comparing the different pricing models for online banner advertising, it is necessary to understand what each formula entails.
If an advertiser is taking out advertisements on a CPM basis, it basically means that they are paying for when the banner is displayed. Eyeballs on an advertisement are referred to as ‘awareness”:
- ‘Awareness advertising’ is a marketing strategy that is designed to grow consumer familiarity with your organisation’s overall message as well as the services or products it offers.
Ultimately, in a CPM campaign the publisher (or company that is hosting the web page where the banner is displayed) simply needs to report on the number of impressions that the banner served.
Alternatively, the published can also add in the number of clicks the banner received but they would not have to promise any clicks as the advertiser was essentially just paying for banner views.
This costing model is usually popular among publishers, but not so popular with advertisers as they are paying for eyeballs on their advert as opposed to people clicking on the ad. The optimal time for an advertiser to entertain the CPM costing or pricing model is if the publisher (web page) offering the CPM rate has a very targeted, extremely engaged and niche visitors to the website that matches the advertiser’s target audience.
On the other hand, if an advertiser is paying on a CPC basis it really means that they are paying for when the banner is clicked on. If someone clicks on an advert this is referred to as engagement with the advert:
- ‘Engagement; in online advertising and social media, means that a user (or possible customer) has engaged with your advertisement by clicking on your banner advert.
The CPC model is very popular among advertisers as they essentially pay once someone shows that they are interested in their product through the process of clicking the banner ad.
For the publisher, the CPC model can be problematic if the advertiser’s banner is:
- Not engaging,
- Not interesting, or
- Not of high quality.
Alternatively, if the advertiser’s banner doesn’t offer their website visitors any value this can cause a problem as the advert could serve many impressions without delivering the number of purchased clicks. This situation is not beneficial for the publisher as they burn through a lot of banner impression inventory to deliver the desired clicks.
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