What is CPA?
CPA stands for ‘Cost Per Action’. It is the overarching term used in advertising as a key performance indicator (KPI) that determines the cost incurred by a merchant for every action reported by the publisher.
A merchant is an entity that has a product they want to market.
A publisher is a partner who markets the merchant’s product through their website, blog, or social media channels.
Every time a person ‘converts’ or makes a purchase, it is considered an ‘action,’ which is when the merchant pays a set amount of money as ‘commission’ to the publisher.
Formula for calculating CPA
CPA can be calculated by dividing the Marketing cost by the number of actions. This is represented by the image below:
CPA = Marketing Cost / Number of Actions
Let’s take an example-
Startup A spends $1000 on a CPA campaign and gets 10 subscriptions that are valued at $500 each. This brings the CPA to:
$1000 / 10 = $100
In the example above, the merchant paid a total of $100 for every subscription that the publisher sold.
While this might seem a lot, remember that a marketing expense of $100 generated $500 for Startup A. If this startup does not have its first customers yet, it can be worth the expense while being equally rewarding as a robust earning model for the publisher.
A CPA model is great for growing startups since one would only need to pay the publisher if they manage to sell their product. It also helps the startup have a defined ROAS that can be set on our own terms based on industry standards.
ROAS– Return on Ad Spend, a KPI used to calculate the ROI on an advertising campaign
The CPA model is also great for publishers since this is a chance for them to take their digital assets to the next level by boosting their revenue. Here is a detailed article on CPA from the perspective of a publisher.
CPA vs CPC vs CPM
Now let’s take a look at the different jargons used in the display advertising space-
| CPA | CPC | CPM | |
| Full Form | Cost Per Action | Cost Per Click | Cost Per Mille |
| How it works | The publisher earns a set amount of money for every ‘action’ they report. This action can be a lead generated, a form filled, or the sale of a subscription. | The publisher earns a variable amount depending on ad demand every time a visitor to their website clicks on a display ad | The publisher earns a variable amount depending on ad demand for every 1,000 impressions of display ads on their website. |
| ROAS | Medium-High | Low-Medium | Very Low-Low |
| Advantages | – Predictable return from a set budget – If no user converts, the merchant still gets brand awareness – Best for maintaining free cash flow | – A CPC campaign can be deployed within minutes – Results can be seen fastest out of the three | – Can be combined with CPC to optimize merchant’s returns – Cheap way to spread brand awareness |
| Disadvantages | – Takes time to set up and grow the publisher network | – CPC bidding can decrease ROAS – CAC is the highest out of the three | – CTR (Click Through Rates) are not high – Low CTRs mean low conversions for the merchant, meaning lower ROAS. |
CPA Strategies for Merchants
Traditional CPA strategies for merchants have been to sign up on a CPA platform such as ClickBank, ShareASale, Impact Radius, Commission Junction, Awin, etc., in order to bring their product(s) online to a marketplace where they can get connected with a network of publishers.
The CPA platforms essentially act as a matchmaking place to connect the right publishers with the right products, which is very important in CPA advertising.
Finding the right CPA platform is also very important since they have their own advantages and disadvantages that should be considered.
A key barrier for most startups is the upfront cost that a CPA platform can present just to get listed on their platform.
Impact.com is notoriously known for not being startup-friendly for merchants seeking to enter CPA marketing since they charge a recurring fee that could be upwards of $600 per month.
It does come with an upside, though, since publishers listed on Impact.com’s program for publishers- Impact Radius have a track record of being some of the best CPA publishers out there. This is because Impact Radius has set stringent rules for publishers, who go through a rigorous vetting process to avoid CPA campaign manipulation and spam to protect merchants and their products listed on their marketplace.
Finding the right CPA platform for most startups comes down to low (or no) listing fees, as well as sophisticated anti-spam and anti-fraud systems. Finding this balance can be tricky but is essential.
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