Cost Per Click (CPC) is the most popular advertising model that is used widely. It is a simple yet effective model where advertisers pay for the clicks. The issue with CPC is that it doesn’t guarantee conversions. Your ad could receive 100 clicks and you might spend over a thousand dollars for these clicks but if nobody converts, your money is wasted.
Additionally, the cost per click is variable. It can go as high as $50 per click for certain industries. It doesn’t sound reasonable to pay $50+ per click with no conversion guarantee. This means $500 for 100 clicks and you might get 2-3 conversions.
Fairly costly, right?
The worst part: CPC isn’t even a reliable metric that your business can rely on. You can’t tell your boss that you paid $1.02 per click for 1000 clicks. If you do, you will be asked, what is the ROI? How many of these 1000 visitors converted?
At the end of the day, its conversions that matter. Conversions make your business grow – not click. This is the reason why businesses and advertisers are now shifting to the Cost Per Acquisition (CPA) ad model.
Cost Per Acquisition/Action (CPA) is a more recent model that focuses on conversions and not just clicks. The advertisers pay when a visitor clicks an ad and completes a specific predefined action such as adding product to the cart, subscribing to the newsletter, filling a form, or buying a product. This model ensures that the advertiser has ‘acquired’ the visitor.
CPA works best for generating leads and sales. Every click that an advertiser pays is guaranteed to give value to the business. No click is wasted. This model makes more sense and is focused on leads/sales, thus it is growth-focused.
Better yet, the CPA model lets advertisers choose their own actions for which they are charged. This means you can actually pay for sales and not just leads with CPA. Not all leads convert so why pay for leads?
This is the beauty of the CPA model because gives you new customers and you only pay for customers and not just clicks, impressions, or even leads. CPA works great for both advertisers and publishers. Advertisers get new customers and publishers are paid a lot for CPA models as compared to CPC. If you get paid $0.75 per click for CPC ad, you might earn $10 with the CPA model.
Publishers earn more with the CPA model and they have the opportunity to engage with their audience. Promoting a CPA offer on your website will work if you have a strong relationship with your audience because you have to convince them to take action – that’s how you get paid. Publishers become part of the model and how they engage with their audience. This is a healthy business model for publishers as they build a relationship with their audience and they can promote multiple CPA offers instead of just one.
And this is the number one reason why leading ad networks have CPA pricing models instead of CPC. Ad Maven, for instance, is a leading ad network that connects publishers and advertisers.
It specializes in the CPA pricing model that makes it exceptionally easy for advertisers to generate leads and sales. With its contextual advertising, AdMaven helps advertisers show relevant ads on relevant sites and publishers get the chance to monetize their websites by relevant ads.
CPA is a win-win.
The debate isn’t new. The differences between CPC and CPA advertising models are covered a lot – and for the right reasons.
CPC is an effective model that works when you know your audience and you have a winning ad that converts exceptionally well. When you are serving the right ad at the right place to the right audience that gets clicked and generates sales, you should use CPC as it will significantly reduce your customer acquisition cost.
In all other cases, CPC is risky. According to Brad Smith, its fraud. It varies significantly from industry to industry and doesn’t guarantee conversions. At the end of the day, it is hard to make sense of.
CPA, on the other hand, has the lowest risk for advertisers. They only pay for conversions, leads, or sales. It couldn’t get any better. CPA, however, involves a different kind of risk that’s related to transparency. Publishers need to send legit traffic and real customers. Fraudulent conversions are quite common in the CPA model. Advertisers, on the other hand, might misreport conversions as it’s hard for publishers to verify conversion.
The issue of transparency can be solved with the help of an ad network that tracks conversions on the advertiser website. This helps, to some extent, track conversion and reduce fraud.
The CPA pricing model suits advertisers and publishers and is indeed the future of online advertising. The advertising cost should be determined via CPA and not CPC. Your decision to choose a publisher should be determined by CPA as it’s the right thing to do considering CPA’s impact on ROI.
Once you start acquiring customers, you need to increase their lifetime value. Provide them with an exceptional experience, offer them relevant products, persuade them to buy again, and convert them into loyal customers. This is what makes your business grow exponentially.
This is a better business model that grows your business by focusing on CPA and LTV – the metrics that drive your business.
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