CPA is one of the three primary pricing models for Web-based monetization, along with cost per mille (CPM) and cost per click (CPC). Cost per action is generally the pricing model friendliest to advertisers or merchants, since they pay only when a certain action is completed (and thus don’t pay for ad impressions or clicks that don’t lead to the desired conversion).
CPA arrangements can compensate publishers via either a percentage-based commission (for example, getting 5% of all purchases completed by referrals) or a flat fee (for example, a $50 commission for every account opened by referrals).
Below is an example of an affiliate on the CJ Affiliate platform that gives referring sites a percentage of any sales generated:
Here’s an example with a different approach; this merchant gives a flat fee of $80 for every sale resulting from an affiliate’s site.
The CPA model is friendly to advertisers because they only pay when a specific action is taken. In most cases, that means that they will only make a payment to merchants after a profitable transaction is completed. In the example above, the $80 payment that Media Temple makes is a large outflow. But if they earn $200 in revenue for every sale, they are guaranteed to see a profit as the net result of any payment.
Similarly, the first merchant may have an average profit margin of 10% on their sales. Even after paying up to 7% to the referring affiliate, the profit margin would remain positive.
Put another way, publishers earn revenue at different points depending on the pricing model:
Though CPA arrangements are generally seen as advantageous to the advertiser, certain publishers may prefer this pricing model too. Specifically, if publishers are able to deliver a high number of clicks and the referrals convert at a high rate, they may be able to realize a very high effective RPM or average revenue per user.
The CPA pricing model is used in almost all affiliate marketing campaigns, with merchants paying affiliates each time a specific action is completed.
Affiliate marketing can potentially be a profitable monetization strategy for some sites; it tends to work well when the topic of a site is extremely focused in a vertical where completed sales or transactions can be valuable. See our e-book Guide to Affiliate Marketing, part of our larger Web Monetization Handbook, to read more on this topic.