The CPA Trend in Online Marketing
Internet marketers are moving away from both the CPM and CPC models as they would rather pay higher dollars for consumer acquisition.
One steadfast rule of the business world is that the person who writes the checks determines the market price of a good or service. In the Internet market, executives who decide marketing budgets are increasingly moving toward the CPA (cost per acquisition) model, where companies pay per form submission or customer acquisition.
This shift results from the extraordinarily low conversion rates of some of the CPC (cost per click) and CPM (cost per thousand) banner ads that these very same marketers have been running for years. Watching some of their online brethren fall by the wayside because of uncalculated marketing expenditures, Internet firms are looking at their marketing budgets more carefully. It's simply in the numbers - paying more per unit winds up being more cost-effective in the end.
This trend hasn't exactly been received with open arms from the salespeople on the other side of the table. In an ideal world from the sales perspective, everything would be sold on a CPM, creating a Web site whose traffic directly determines its advertising revenue. As Web sites continue to serve up millions of pages per month and send exorbitant numbers of e-mails per week, it's easily understood why Internet salespeople would rather show the CPM rate card.
Unfortunately, companies need to see return on their marketing dollars, and nothing guarantees return on CPM. Of course, exposure and branding are key elements that can't be assessed in a CPA model, but the bottom line is that Internet companies know full well what can happen when large marketing budgets have been spent without effective customer conversion.
For Net companies the key question used to be "What's your traffic?" Of late it has become "Are you profitable?" Profitable or not, one key ingredient in reaching that plateau is having customers, which is prompting more ambitious companies to go out and get them. Increasing pressure from e-businesses has those marketers that were sticking to their guns and saying, "We will never sell for customer acquisition" now asking, "How much are you willing to pay per form?"
Taking advantage of the CPA trend are companies like RedResponse Inc., New York. The firm has popped up to help companies find marketers willing to accept their CPA marketing budgets. It's their job to be in tune with what's out there on both the buy and sell side, looking for those who are eager to spend and eager to sell, and putting the two together. It all sounds similar to a Wall Street trading desk, and it is, only instead of bonds, options or stock, these guys are trading consumer acquisition.
Though this trend is picking up steam, it is still far easier for companies like RedResponse to find businesses willing to spend. To understand how eager some online companies are to put their marketing dollars toward customer acquisition, let's look at online brokerage companies.
Many companies in the online trading arena are willing to spend more than $150 if you can get them a consumer to fill out a form, open an account and make one trade. Imagine putting those numbers to work if you have the capability to send out 1.5 million e-mails a week and average a 1 percent signup. It then is understandable why CPA can work for both sides of the market.
Not only does CPA make more sense for advertisers, it also helps consumers. Most of us are familiar with E*Trade's willingness to put $75 in a new client's account. That's E*Trade's way of taking part of what it's willing to pay for customer acquisition and giving some back to the customer.
In fact, most deals a consumer can receive on the Net have direct CPA routes, as bounties on acquisition are usually large enough to kick a substantial amount back to the consumer. As the CPA trend grows, there will be a directly related increase in the amount of online bargains, rebates and freebies.
The Internet is young, and so, too, are its advertising models. It has seen a shift from predominantly paying per images viewed to images clicked, and we are on to the next evolution. This evolution is CPA, and it promises to bring a change in the way online advertising is bought and sold for some time to come.
• Scot Fishman is founder and chairman of the board of ebrick.com, New York.