CPA Advertising: When Is It Appropriate?

Internet marketing has proven to be one of the most cost efficient mediums for businesses to find new customers. The internet reaches a global market, and because of the interactivity of the medium, one can selectively target laser precise demographics to improve returns on investment. Many companies turn to paid advertising to get traffic to their website. Cost per action (CPA) advertising is one of many paid advertising methods that businesses use to acquire new customers.

CPA advertising refers to an advertising model whereby a business owner pays for every particular action that might be taken on a product. This can represent a fee paid upon a product sale, or a payment upon a lead generated.

This contrasts with two other common methods of paid internet marketing, cost per impression (CPM) and cost per click (CPC). The CPM model has the advertiser paying for every time an online surfer has an ad appear on the visitors’ screen, whether the user interacts with it or not. CPC results in charges when the ad is actually engaged on and clicked by the user.

CPA advertising is particularly popular in that it can be relatively risk free. This is particularly true if the action is a sale, which some might recognize as a standard commission model. The business only pays money if it gets revenue, and presumably the profit margin on that piece of business should more than cover the advertising costs.

However, if the CPA action is the generation of a lead and not a sale, greater risks can be involved. A business must reliably know the average rate at which it can close a typical lead and must make sure that it is not receiving visitors from providers who send over poorly qualified leads, such as those who are not even interested in the company’s services.

While CPA advertising can be seem more risk free than CPM and CPC, the fact of the matter is that if a business knows its conversion statistics, CPM and CPC might actually represent advertising models with higher returns on investment. Generally businesses with a really good sales funnel will benefit from CPC over CPA, and those with good conversion funnels in addition to a captivating advertisement will benefit from CPM over all the advertising modalities. By split testing various methods, a business owner can discover the best advertising model for the business.