CPM vs. CPA: A Call for Balance

Contention is brewing over online advertising, particularly regarding cost per action pricing versus the more traditional cost per thousand buy.

Each camp is busy defending its pricing or attacking the other model. But neither pricing model has any long-term staying power if marketers or the online properties that publish their ads decide there is insufficient benefit to participate.

In the late 1990s, marketers paid unprecedented CPMs and got little in return. Now, with online advertising taking a beating, publishers face record-low prices and are being held more accountable than ever to produce results. Both situations are prime examples of an online ecosystem that is seriously out of whack. Online advertising will flourish only when the needs of all parties are better aligned and negotiating leverage is better distributed.

To be a successful CPA marketer, a company needs quantitative knowledge of acquisition costs and, for longer purchase cycles, the conversions associated with moving through the buying process. Many direct marketers have this information readily available, including multichannel retailers and those in the financial services (credit card issuers, insurance companies and banks), telecom and automotive industries. To be a successful CPA publisher, an online property needs excess inventory, a willingness to test CPA and be able to convert CPA pricing to effective CPMs or cost per clicks.

Both sides of the equation must be in balance to create a sustainable, profitable online ecosystem. Marketers have influence because they hold the purse strings. Publishers have influence because they have the inventory and retain control over placement.

With access to real-time tracking, CPA will show whether an ad is actually producing sales. The publisher can shunt a poor ad to the dark recesses of the sales floor, so to speak. Or, just as the marketer can adjust the offer and creative, the publisher can try other placements to optimize results. With the right mix of attractive clients, publishers can generate revenue that meets their effective CPM threshold.

Let's look at an online lender of personal loans, for example. Lenders have detailed information on conversion rates and corresponding costs. On a CPA basis, an ad can be priced at 25 cents per click, $15 per completed application or $50 per approved application. With some quick calculations, that same ad can be priced on a CPM basis. With the right mix of promotions, creative and placement, both parties should be neutral to the payment approach. For marketers with response-driven objectives and publishers with excess inventory, CPA keeps both parties focused on the goal. Many marketers and publishers have tested CPA and found it very lucrative for all.

As a company specializing in pay-for-performance online marketing, Performics can say that marketers trying to hardball publishers do so at their own peril. Not only will they see weak sales in the short term from lack of publisher cooperation to optimize placement, they also will find that as the ad market gets more competitive, CPA space will be unavailable to them.

However, if they recognize the leverage retained by the publisher — namely, control of placement – and treat the publisher as an equal negotiating partner, they will be rewarded with higher online sales. They also will find CPA opportunities available to them as publishers look to fill CPM slots that opened up at the last minute or because they know that marketers' CPA placement can be a lucrative proposition.

It behooves us all to strike that balance in the online marketing ecosystem. There are countless CPA success stories — from the perspective of both the marketer and publisher — that have weathered all economic climates and maintained steady growth throughout. With pricing based on real customer acquisition data and testing to find the right offers, creative and placement, these companies have shown that CPA does have an equilibrium point and can possess impressive staying power.

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