Cost Per Action – Broken Down

Chad Willis Marketing, Uncategorized 0 Comments

CPA is simply a type of affiliate marketing.  You’ll hear a lot of these kind of acronyms, and they’re all just references to what constitutes a “conversion” for the affiliate.  Cost Per Trial, Cost Per Sale, Cost Per Lead, and more all fall under the umbrella of Cost Per Action, since they require the user to do something before a conversion takes place.

In this post, I’m going to be breaking down the most common forms of Cost Per Action marketing, focusing on the four I mentioned above.  I will barely be able to scratch the surface of the topic, but this should serve you for some general knowledge of the topics.  Within each of these categories, there are numerous verticals, or types of products to promote (i.e. a dating website for CPL, where the affiliate gets paid when the user registers to the site), and I will go in-depth on each in a future post.

Cost Per Lead

 

CPL offers all have one thing in common: somewhere down the sales funnel, there is going to be an up-sell.  Let me give you two different examples.

Mike owns a dating website, meethotsingles.com.  Mike wants to get more people using his site, in hopes that, in time, they will upgrade to his premium membership, which costs $10/month.  Mike goes to Liam, an affiliate marketer specializing in the dating vertical, and offers him $5 for every person that registers to meethotsingles.com under his affiliate link.

Carlo owns a website that sells a video product teaching people how to ski for $50.  On Carlo’s front page, there is a form to put in your email if you want to learn more about his video, and after submitting their email, the visitor is then redirected to a page to purchase Carlo’s product.  Carlo pays Liam $1 for every email submission he can drive to his site, hoping that immediately after signing up, they will purchase his product.

In summary, in a CPL model, the advertiser pays the affiliate for submissions of data, typically a name, email, phone number and/or address.  The advertiser is not guaranteed any direct financial gain from each submission, and the person who registers is not obligated to buy anything.  While they might not make money on the point of conversion, the advertiser does gain valuable data to market to at a later date.

This model is very popular with affiliates because it’s much easier to get someone to type in an email than to pull out a credit card and spend real money.  Advertisers typically limit this type of marketing to specific affiliates who have proven themselves to drive quality traffic, because it’s riskier for them as sales aren’t guaranteed.

Cost Per Sale

 

Effective and simple.

John owns a company that sells eBooks.  John offers Rick $40 for every eBook he can sell (damn that’s expensive!).  Rick is only paid when a sale is made; if one of Rick’s users fills out all his information and then decides not to buy the product, he doesn’t get anything, and John gets to keep the data.

CPS offers pay much higher than CPL offers, but they are harder to convert.  That said, if you are marketing to people who are really interested in the offer you’re promoting, CPS is the way to go.  For example, let’s take a CPA offer has two different versions, one that pays $7 per lead and one that pays $50 per sale.  If you’re sending traffic to the CPL version for $7 per lead, and 10 out of the 100 clicks (clicks = a person going to your affiliate link) convert to a lead, and only one converts to a sale, you’re making $70 instead of $50.  The advertiser will most likely kick you off the CPL offer and switch you to the CPS since it’s not profitable, but theoretically the CPL is better for you.

Now let’s say that you’re converting 10 out of 100 people to the lead, but 7 out of those ten to the sale.  You’re missing out on $280 worth of revenue.  ($350 for the sales, $70 for the leads. $350 – $70 = $280)

CPS is easy.  An affiliate gets paid when a user buys something.

Cost Per Trial

 

Trials are where things can get tricky.  They’re a blend between CPL and CPS, carrying the same risk for the advertiser as CPL, and also the same hassle for the affiliate as CPS.  They can also be unethical, and the FTC has cracked down on some of the sketchier advertisers.  You don’t find many trials that can be marketed in the United States due to the regulations.  I’ll talk more about that in the future.

Bernard runs a business that sells diet pills.  On Bernard’s website, the user can purchase a trial run of his pills for $5, but 28 days later, they are re-billed for the full amount of the product, $70.  This re-billing will continue to occur until the user cancels the product.  For every $5 trial that John can sell for Bernard, Bernard pays him $40.  To be clear, John’s traffic must input a credit card and make a $5 purchase in order for the conversion to take place.

Wait, why did you say there’s risk for Bernard if he’s making $70 on the re-bill, when he only has to pay John $40?

That’s because the user who signs up for the $5 trial doesn’t have to continue with the $70 re-bill, they can cancel the product on their card anytime before the charge occurs and they won’t have to pay.

Trials are hard to understand.  In short, the advertiser gambling on the affiliate’s users, banking on the fact that they’ll continue to allow the monthly product to be sent to them.  Affiliates like trials because they are easier to convert than sales, yet pay much higher than their CPL equivalents (typically 4-5x more than the CPL payout).


Again, I have barely scratched the surface of the different types of CPA marketing, but CPL, CPS, and CPT are the most common kinds that you’ll find on the web.

If you’re a beginner, read my post on the optimal first campaign, where I explain why running CPL offers are perfect for newbies.

 

 

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