What does Cost-Per-Action Mean?
Cost-Per-Action or “CPA” is an online advertising pricing model from affiliate marketing in which the advertiser only pays money after a user has completed a specific action on the website. This can be an explicit purchase (cost-per-acquisition), a download, the installation of a program, the subscription to a newsletter or a click on a specific button on the website.
How does Cost-Per-Action work?
In contrast to the cost-per-click model, the cost-per-action method does not generate any costs for the advertiser merely by clicking on an advertising banner; In cost-per-action, a follow-up action must then take place before charges are incurred. In the case of Amazon, as well as other online shops, a purchase is usually made as a follow-up action (cost-per-acquisition). For a market research institute, a call could be the follow-up action (cost-per-call). Cost-per-action serves here as an umbrella term for diverse accounting methods.
Variations of Cost-Per-Action
With the help of bidding tools or advertising platforms (e.g., AdWords), advertisers can track their conversions free of charge. Two CPA variants are available:
With this method, the advertiser specifies the average he or she is willing to spend per conversion. The bids will be above or below this amount. However, the average of all CPAs will be the same as the target CPA previously set.
With this variant, the advertiser decides the maximum amount he is willing to pay for a conversion. If this method is chosen, most bids will be below the maximum amount. However, there is a requirement from the optimization tool; The optimized campaign must make at least 200 conversions in the last 30 days.
For this reason, it is essential for advertisers to think in advance about the right CPA strategy and to be aware of the advantages and disadvantages of the various CPAs.
Advantages and Disadvantages of the Cost-Per-Action Model
Compared to other models, the CPA is more cost-intensive but is particularly secure when it comes to accounting in the online marketing sector. Also, the advertiser has the advantage of being able to design the campaigns in a particularly precise and target-oriented manner and off course to pay only for successful results. In contrast to the CPC (cost per click) method, the data obtained from Cost per Action campaigns are more relevant, as they require a higher involvement from the customer, as opposed to purely click-based data.
Cost per Action usually offers higher advertising success, but this means that the total cost is higher than with CPC or other models.