What is Cost Per Action(CPA)?

CPA stands for cost-per-action. CPA essentially measures actions that are taken by the web site visitor that result in a purchase or an equivalent action such as signing up for a newsletter. An online marketer is relieved of some risk and is giving their advertisement investment a better value as this model places a lot of the responsibility of conversion to the publisher of the web site. Think of it in terms of earning commission. The goal of the online marketer is to compose a creative campaign that is capable of generating actionable leads and pays for each lead which results in some action being taken.

CPA is considered the optimal form of buying online advertising from a direct response advertiser's point of view. An advertiser only pays for the ad when an action has occurred. An action can be a product being purchased, a form being filled, etc.Google has incorporated this model into their Google AdSense offering while eBay has recently announced a similar pricing called AdContext.

One potential benefit of a CPA model is a reduction in click fraud. Payments are based on a user clicking on an ad and then performing a specified action, such as generating a lead or purchasing a product. While not impossible to manipulate, that model is harder to game than one that pays publishers for clicks alone.

Leaders in that industry include ValueClick's Commission Junction network, Rakuten's LinkShare and DoubleClick's Performics. But at least one other search player, Snap.com, has been offering cost-per-action pricing for more than a year. Google's entry into the market could threaten all of these players.

Benefits of Cost Per Action PricingAnyone involved in this industry knows that things aren't simple or clear-cut in the world of online ad prices, where sites and advertisers are experimenting with a wide range of creative pricing options.

·         We consider cost per action (CPA) pricing any formula that has advertisers paying not for viewership, but only for those viewers who do something upon seeing an ad.

·         Advertisers often favor such pricing strategies because they pay only for measurable results. The problem for publishers is that they carry all the risk - if a poorly designed or badly targeted ad draws low activity levels, the publisher gets no revenue for those impressions served.

·         CPA pricing can range from cost-per-click to cost for registration forms filled out, contests entered, questionnaires answered, or cost per ultimate product purchase. And this includes lots of other variables along a continuum of steps toward the sale.

Risks in Cost Per Action Pricing

·         To counter the risk, most publishers charge much more for CPA arrangements, with the price going up as the action gets more demanding (and moves the customer closer to the sale.) So cost-per-click is higher than cost-per- impression. The cost for a completed registration form is many times higher, and the revenue share or cost-per-sale model is considerably higher still.

·         What multiples make sense depends upon site performance, and the site's visitors' anticipated actions. The more a publisher knows about how regular visitors react to various calls to action, the better equipped they are to appropriately price CPA arrangements.

·         CPA pricing is less clear to any supplier who recognizes that actual results are as dependent upon what the buyer brings to the transaction, as to what the seller supplies.

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