Understanding Cost Per Action Marketing

Guest post by Marianne Pratt

Cost Per Action marketing refers to advertising where a marketer only pays when a person viewing an ad takes an action.  The specific action that must be taken, for example buying a product or service, is the choice of the advertiser.  Cost Per Action (CPA) is also called Pay Per Action (PPA) and, while sometimes people use the phrase Cost Per Acquisition,  not all Pay Per Action Advertising is considered Cost Per Acquisition.  Acquisition usually refers to making a purchase or filling in a form.

Types of Cost Per Action Advertising

There are several different types of cost per action advertising, which vary depending on the action taken:

  • In addition to the action of making a purchase, an action may also consist of filling out a form or downloading something.
  • Sometimes the action is simply signing up for a newsletter.

Cost Per Lead, another form of cost-per-action is a way for advertisers to get prospective customers. It usually involves the consumer signing up for something, like further information.  Information about a lead may be just email information or may include a multi-page form requiring the user to complete additional demographic information.

Measuring the Effectiveness of a Cost Per Action Campaign

To calculate Cost Per Action there are calculators online to help you.  Essentially, however, in order to do your calculation you simply take the cost and divide it by the number of acquisitions.  The number of acquisitions is calculated by multiplying the number of impressions by the CTR (Click Through Rate) percentage and by the CR (Conversion Rate).

To measure the effectiveness of a Cost Per Action advertising campaign, however, it must be compared to other similar types of campaigns.  This is called Effective Cost Per Action (eCPA).  CPA is commonly compared to Cost Per Click, Per Impression or Per Mille advertising.

  • Cost Per Click means the advertiser pays when anyone clicks on the ad.  You will generally get better results with Cost Per Action advertising than with Cost Per Click because with CPA you only pay when a person is interested enough in what you are selling to fill out a form or to actually buy it.  This shows more genuine interest than just clicking.
  • Cost Per Impression or Cost Per Mille means you pay for every 1000 impressions. An impression is anytime the banner or other type of ad is shown to a user on his computer screen.  Cost Per Mille is concerned with how many times an ad shows up, but unfortunately, viewers may not even look at the ad.  Cost Per Click is a better option than CPM because at least you know the person was interested enough in the product or service to click to learn more about it.  Best yet is Cost Per Action, where the person is very interested and is either ready to buy or ask for more information.

Using Cost Per Action Marketing

Cost Per Action marketing is used often by affiliates.  Affiliates will pay for the Cost Per Action advertising and the company he works with will pay him a certain amount of money for each action of a visitor to his ad.  The action paid for will be worked out between the company and the affiliate.  This can be a great way for a company to generate leads because a visitor that is willing to sign up for more information could become a customer in the future.

 

6 responses to “Understanding Cost Per Action Marketing”

  1. Adonis_aden

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  2. Understanding Cost Per Action Marketing | Accounting and Small Business /Beverly Shares

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  4. SITY

    Thanks for information, it’s very helpful

  5. Kimberly Paris

    The best explanation for this key metric I could find. Excellent article. Thank you for taking the time to post this information on Cost Per Action as it relates to marketing on the internet.

  6. John Mauldin

    Great explanation of cpa! Thanks for the information! JM

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