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Cost per action

Online advertising has been the most progressive industry of our time. With some CPC programs, only clicks to certain products will generate revenue. Huge leaps of advancements have been made in this industry within a very short span of time. Best aspect of this industry is every important change that has come about has been in the interest of the advertiser. Online Advertisers are now able to get more value for their advertising budget with very high Return on Investment (ROI). The latest in terms of improvements in online advertising industry is Cost per action advertising.

Cost per action Advertising is the latest payment model available in online advertising. Initially, online advertisers had to pay for every 1000 thousand impressions of their ads. This was one of the worst payment models with the least effectiveness. The next model enabled online advertisers to only pay for the clicks they received on their ads. This definitely helped increase website traffic, but sis not necessarily guarantee sale. Cost per action advertising allows advertisers to only pay when an ad leads to an actual conversion.

CPA as "Cost Per Acquisition"

CPA is sometimes referred to as "Cost Per Acquisition", which has to do with the fact that most CPA offers by advertisers are about acquiring something (typically new customers by making sales). Using the term "Cost Per Acquisition" instead of "Cost per action" is not incorrect in such cases, as not all "Cost per action" offers can be referred to as "Cost Per Acquisition".

Formula to calculate Cost Per Acquisition

Cost Per Acquisition (CPA) is calculated as:

ad campaign cost / [number of impressions x CTR x CR]

Example: an advertiser pays a CPM of $10. For 20,000 impressions the advertiser has 5 percent click-through rate (CTR) to the landing (destination page). 30 percent of those 5 percent convert to paying customers(CR). The calculation is:

($10.00 * 20,000 Impressions / 1000) / (20,000 * 0.05 * 0.30) = $0.67

That is, the cost per acquisition is $0.67.

PPL as "Pay Per Lead"

Online and Offline advertising payment model in which fees are charged based solely on the delivery of qualified leads. In a pay per lead agreement, the advertiser only pays for leads delivered under the terms of the agreement. No payment is made for leads that don't meet the agreed upon criteria.

Leads may be delivered by phone under the pay per call model. Conversely, leads may be delivered electronically, such as by email, SMS or a ping/post of the data directly to a database. The information delivered may consist of as little as an email address, or it may involve a detailed profile including multiple contact points and the answers to qualification questions. There are numerous risks associated with any Pay Per Lead campaign, including the potential for fraudulent activity by incentivized marketing partners. Some fraudulent leads are easy to spot. Nonetheless, it is advisable to make a regular audit of the results.

Differences between Cost per action and CPL advertising

In CPL campaigns, advertisers pay for an interested lead (hence, Cost Per Lead) - i.e. the contact information of a person interested in the advertiser's product or service. CPL campaigns are suitable for brand marketers and direct response marketers looking to engage consumers at multiple touch points - by building a newsletter list, community site, reward program or member acquisition program.

In Cost per action campaigns, the advertiser typically pays for a completed sale involving a credit card transaction. There are other important differentiators:

  1. CPL campaigns are advertiser-centric. The advertiser remains in control of their brand, selecting trusted and contextually relevant publishers to run their offers. On the other hand, Cost per action and affiliate marketing campaigns are publisher-centric. Advertisers cede control over where their brand will appear, as publishers browse offers and pick which to run on their websites. Advertisers generally do not know where their offer is running.
  2. CPL campaigns are usually high volume and light-weight. In CPL campaigns, consumers submit only basic contact information. The transaction can be as simple as an email address. On the other hand, Cost per action campaigns are usually low volume and complex. Typically, consumer has to submit credit card and other detailed information.

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