Want to know exactly what CPA marketing is? In this guide, we’ll tell you everything you need to know about CPA, from how it works to the best campaign practices.
What is CPA Marketing?
CPA marketing, or Cost Per Action marketing, is a business model used for affiliate marketing in which affiliates get paid when they get people to commit specified actions.
To understand how CPA marketing works, it’s important to understand how affiliate marketing works.
Affiliate marketing has three main players. Publishers (affiliate marketers), Advertisers (companies which have products, services or offers to promote) and Networks (the bridge between Publishers and Advertisers). CPA marketing is the most widely used form of affiliate marketing and allows publishers, advertisers and networks to all work towards the same goals.
Publishers make their money when people buy products using their links. Advertisers make money when people buy their products and networks make money by taking a fee from all successful conversions. In return, networks give additional security to publishers and advertisers, bring tonnes of offers straight to affiliates and send high volumes of traffic to advertisers.
Why not go direct?
Affiliates can go directly to advertisers, however, sourcing good advertisers is difficult and, if publishers go it alone, they may not have the power to strike the best deals. With a network on their side, top publishers can get unique deals if they prove they can deliver high-converting traffic. Affiliate marketing isn’t the Wild West it once was, but it is still better to ride with a posse than to be a lone ranger, as the benefits far outweigh the cut paid to the network.
CPA is the industry-standard marketing model because it benefits all parties. Publishers, advertisers and networks all rely on mutual success and all benefit.
Advertisers only pay/profit when they make sales, publishers only get paid when they make sales and networks only get paid when offers convert and publishers send quality traffic to advertisers. Therefore, the network in the middle needs the publishers to provide high-quality traffic and the advertisers to provide high-quality offers.
CPA Formula and Method Explained
CPA gets its name from the formula used to work out a campaign’s profitability. The calculation allows you to work out how much it costs you to get someone to commit an action. To work out your CPA all you have to do is divide the amount spent on advertising by the number of actions.
Cost/Actions = CPA
Here’s an example:
Tim runs a fitness page on Facebook and he wants to monetize it. He wants to promote lifestyle and health products. Tim searches and finds an affiliate network that has a vegan protein shake offer. He contacts them and they add him to the network. They allow him to run the offer and give him his own unique affiliate link that will track and attribute every visitor who uses his link to his account.
The network offers Tim $50 for every person who buys the vegan protein shake using his link.
Tim puts the shake on his page and hopes for the best. A week or two goes by and Tim hasn’t sent any traffic. His affiliate manager suggests that he use paid advertising, but Tim is afraid he will lose more than he makes. Therefore, he needs to figure out how to make more than he spends on advertising.
Tim decides to create some Facebook ads and promote them to an audience. He spends $100, but only one person buys a shake through his link. He knows if he carries on like this he’ll lose money, but how much?
In Tim’s current position, his CPA is $100. He spent $100 and got one conversion. Therefore, one action cost him $100. He earned $50, however, at the current rate, it will cost him twice as much as he earns to get a conversion.
Tim talks to his affiliate manager, who tells him that he needs to optimise. Tim’s manager offers him a lookalike audience. Tim runs sets up another campaign, again spending $100. This time, Tim gets 4 conversions.
Tim spent $100 on advertising and got 4 conversions, therefore, Tim’s CPA is $100⁄4 = $25!
It costs Tim $25 to make a conversion, for which he will receive $50. That means that Tim’s campaign is now profitable!
The Bottom Line
The CPA Marketing model is the industry standard and it creates mutual goals between publishers, advertisers and networks. It can provide a great opportunity for you to monetize your sites, however, it doesn’t come without risk. Publishers’ campaigns don’t always work and it takes time and money to optimise a top-tier campaign. However, if persevere and learn from your data, then they sky really is the limit.
If you would like to get access to loads of awesome offers to monetize your site, then join Converting Team today and speak to one of our affiliate managers.