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The CPA vs. PPC Debate: Why Can’t Both Ad Strategies Just Get Along?

Written on
May 9, 2006 
Author
Tiffany Guarnaccia  |

Is the Pay Per Click (PPC) online advertising industry changing? Experts say that, as the PPC model changes, its natural progression will cause it to move towards the Cost Per Acquisition (CPA) model. For example, Revenue.net, formerly a sole PPC provider, recently launched a CPA model. Are other providers likely to follow suit?

The PPC Model – Clicks Count
In the PPC model, advertisers pay when Internet users perform a search and click on their paid listing. Affiliate PPC partners then earn a percentage on a per click basis. In order for a PPC ad to be returned, an Internet user must perform an action such as typing in a keyword for a specific product or service or clicking on a link containing a relevant listing.

By paying when there is an active attempt made, ideally advertisers’ listings are exposed to only Internet users with future client potential. However, there is some uncertainty as to who is actually seeing the ad. Therefore, since advertisers must pay for every click, measuring sales and calculating return on investment is a necessary step to ensure campaigns are running at profitable levels.

The CPA Model – Only Conversions Matter

In the CPA model, advertisers pay only when visitors convert into an actual customer. As a result, unless there is a qualifying action, such a sale or signup, the advertiser is not charged. This takes some of the risk out of the equation for advertiser because there is a fixed cost per conversion.

Yet, the CPA model can seem risky for affiliate webmasters. For example, a CPA provider can pay 4-10% for referral of customer who buys something, which is a portion of the cost of the item purchased. So far so good, but if a referred person creates an account and comes back through the same link, the partner does not get anything. If a referred person clicked on the link to buy book about cats and ends up passing on this book, but still buying a different book on dogs, the partner only gets minimal referral revenue.

So essentially, a partner can deliver a paying customer, and the CPA provider makes a decision on what to pay for it. Therefore while the CPA model ensures that advertisers are only paying when sales actually take place, the deals are not usually favorable from a partner standpoint.

CPA and PPC Model Fusion
One could say that CPA is more advertiser-focused and CPC is more partner-focused, but it is basically a question of who bears the risk. In the CPC model, the advertiser pays first and then can see the traffic and measures conversions afterwards. In a CPA model, the partner sends traffic and the advertiser only pays for the traffic that converts. One could say the two models are similar, but with CPC, the CPA cannot be determined until after the fact. A cost per conversion may be higher or lower than the price that was agreed to pay for CPA. Consequently, an element of risk is associated with the CPC model.

This is where a possible CPC/CPA fusion model could come into play. PPC provider Searchfeed.com indicates possible future plans of developing a hybrid model. In this proposed new model, advertisers would pay on a per click basis, while partners would get paid on per acquisition basis. That would then put the responsibility of determining converting traffic on the PPC engine and could work best for all parties involved by ensuring that advertisers receive converting traffic and partners still earn a fair percentage of revenue.

This could also quite possibly quell fraudulent traffic concerns. Since affiliates would be paid a percentage for each conversion, there is no incentive for them to generate clicks that do not convert for advertisers, rendering these clicks useless since if traffic does not convert.

At this point, no true “hybrid” models as described above exist and whether one develops, well, only the future will tell.

Any thoughts on who wins and who loses when using the CPA vs. PPC models? Or if the model should be combined in the future?





Tiffany M. Guarnaccia, Searchfeed.com Corporate Communications
Tiffany heads the Corporate Communications Department for Searchfeed.com, a leader in Pay Per Click (PPC) search advertising. In this position, she provides advertisers, web publishers and Internet users with information on PPC advertising and content integration technology, mainly relating to small-to-medium-sized, industry-specific websites and portals. Tiffany has written many byline articles and spoke at educational online seminars covering advanced online advertising methods, while highlighting Searchfeed.com's goal of educating the Internet community on topics related to search.

Reader Comments.

For low conversion programs, we suggest to our clients that they reward a dual-pay (a small per click commission, plus a large CPA per-lead conversion). This way, even low converting offers can acquire affiliate promotion due to the per-click commissions.

Our upcoming Search Engine Scouts network will put a new twist on the CPC VS CPA models. It will provide affiliates with the ability to promote affiliate campaigns via major search engine keyword bidding, by eliminating affiliate URLs (redirect links). It will be the affiliates who pay per-click fees to search engines, while in return earning CPA rates for converted traffic.

Posted by David Hurlbert | 2:22 pm on May 9, 2006.

I believe this article addresses a huge need in our area. A CPC/CPA hybrid makes sense for both parties as it diversifies the risk and increases the rewards for both. For the advertiser, better quality traffic, for the partner (publisher), higher payouts on the CPA.

Posted by Adam Riff | 2:34 pm on May 9, 2006.

What about something a little simpler. Flat-rate unlimited clicks for the advertiser and monthly re-occurring income for promotional partners. Everyone wins.

Posted by Martin Garcia | 3:35 pm on May 9, 2006.

The cpc model isn’t great but it is measurable. An issue with cpa based schemes is that they usually rely on a cookie to measure the success of the action. So if people search at work and buy at home or if (as is increasingly popular) the searcher deletes their cookies before the sale is concluded then the true value of the affiliate will not be recognised.

Posted by Steve Benbow | 12:30 pm on May 11, 2006.

Cost Per Acquisition or Welcome to Internet ROI

Of course the trend in SEM is heading toward CPA or cost per action. The action can indeed be flexible, and defined by the industry or client. The range is wide from simple acts by the user to actually executing a sale.

Frankly, I never understood the CPC model. Of course businesses had their internal metrics which determined the true cost of any action. The average number of clicks was determined to generate any step in the business model. If the price was right, then companies stayed with this.

However, it still did not accurately represent the true power of on-line marketing. In many cases, advertisers were paying simply to be eyeballed. What does that harken back to? Oh yes, television advertising.

I teach marketing at a local university. I always joke that when the true cost of a tactic or strategy can not be analyzed or tied to sales figures, then the rationale is “branding.” As in the excuse “this was done to further brand our product.”

Since Internet marketing is so trackable, then it needs to be tracked. Just because the campaign meets cost projections, does not mean that money is being wasted.

Of course click fraud exists. People turn off their cookies. Unscrupulous business wreck havoc on competitors ads. People make mistakes. Individually that might not make an impact but aggregately the ramification could be huge.

Or, there are situations that I call Internet Acts of God. The equivalent to a class 5 hurricane occurring on-line. I worked with a small SEM firm during the seminal time of this strategy. Back in the day when email and banner ads were considered the best marketing choices. We did charge CPC and had our internal software to illustrate the traffic.

It allowed our clients to see where the clicks were emanating from and what key words or phrases were used to initiate a search. Some of the phrases were hilarious. One of our clients had feminine products and for some reason someone keying in South Korea found that site.

But I digress. Back to the hurricane. I had just contracted with a small home based business that sold Atkins products to use our services. They understood CPA and budgeted money for a month trial. This was based on my company’s previous experience with associated key words. Two days into their campaign, a famous medical journal gave credence to low carb diets, specifically Dr. Atkins. As a result, a tidal wave hit their web page. Their budget was depleted within hours. Not one sale was made.

Of course, my company wiped the slate clean and started again. But CPA has been and continues to be the best solution.

Posted by Barbara Friedland | 2:35 pm on May 11, 2006.

A PPC CPA model is already in effect at http://www.snap.com (idealab I believe). Currently their site is down until a relaunch on May 15th, but they had been running that model for about a year now. The traffic volume has been very low however.

Typically, CPA tracking is done most often by using a pixel on the confirmation page for lead gen sites and not a cookie. When it comes to tracking shopping cart sales related sites you’ll only need to look at some of the bigger networks like Commission Junction who also use pixels to track sales. It’s still not the best method and not entirely accurate, but the advertiser usually builds that into the price they pay the publisher anyway. A CPA structure via pixel tracking will still keep advertisers honest however becuase they’ll still be competing in the marketplace for position based on an overall effective eCPM which is what Google uses today.

Posted by Jack Ryan | 3:14 pm on May 11, 2006.

Can anyone recommend good CPA networks (other than obvious one like Commission Junction, AD.com, etc.). I represent an advertiser that only does CPA, CPL programs and I am always lookign for new partners.

Thanks
Aleks

Posted by Aleksandra Injac | 5:41 pm on May 11, 2006.

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