Internet advertising pricing models: cost-per-click (CPC) or cost-per-action (CPA)? Why is it that this conversation always features the word "or"? Simply put, in the red corner we have media owners, most of whom prefer to charge advertisers on either a CPM (apologies for the additional acronym) or a CPC basis. After all, it gives them a greater guarantee of payment. In the blue corner we have the advertiser, and most advertisers would rather pay only when a desired action occurs, namely, on a CPA basis.
As a marketer representing a pay-per-click media owner, I feel as if I have a foot in each of these corners. As an advertiser, I understand the appeal of only paying for media space that brings MIVA a new client. As a CPC media owner, I understand which elements are in my control. I can control the clicks and my intention is for those clicks to turn in to actions. Whether that's the case, though, also depends on an advertiser's website-- if their credit card facility doesn't work or if their site is poorly designed, is that my responsibility?
It's about time we changed the conversation. The "or" should be replaced with an "and." Ultimately, it doesn't matter which pricing model is used; advertisers always tend to work back to a CPA. If you're getting a great return on your ad spend from a click buy, you're going to be willing to buy more, and perhaps even pay more.
An interesting company to look at in the CPC and CPA conversation is Snap.com. This IdeaLab search engine was created by Bill Gross, the gentleman who started GoTo.com (the former name for Overture, which is the former name for Yahoo! Search Marketing). With Snap, advertisers can decide how to pay: by CPC; fixed cost-per-action (FCPA) -- where advertisers choose a fixed amount and pay only when a consumer completes a specific, set action -- or variable cost-per-action (VCPA), where advertisers choose a fixed percentage of the purchase price and pay only when the item is sold. Snap's minimum FCPA is $1 per action, and its minimum VCPA is five percent per sale.
Snap's pricing structure does highlight an interesting comparison-- the minimum CPC rate on many engines (including MIVA), is five cents. Some companies' CPA may be less than a dollar. Are they priced out of the CPA game by a minimum price? And how about content-led websites that are looking to increase audience in order to bolster impression levels for their own advertising sales efforts?
Let's look at pricing first. CPC pricing allows companies of all sizes, with budgets both large and small, to benefit from cost-effective, results-driven online advertising. With a low minimum price point, advertisers using CPC engines tend to be able to afford to bid on both targeted keywords and generic terms. These targeted terms are referred to as the keyword long tail or the long tail of the search term curve. They're the "cheap flights to Morocco at Christmas" keyword string that, due to less volume and often lower competition, commands a lower CPC price than the keyword "flight" which is more generic and costly.
CPC also tends to work well across a wide range of marketing objectives as it can provide great exposure online-- driving audience, increasing sales and growing new registrations. So does CPA. But, if your main objective is to drive audience, CPC ad buys would appear to be the better route to go. With CPA pricing, the use of promotions and incentives, such as "buy one, get one free" becomes increasingly important to drive uptake. Promotions work excellent for CPC too but are not as crucial.
In today's online world, pay-per-click engines, also known as search marketing programs, most commonly use CPC pricing. CPA pricing is used predominantly by the affiliate networks. Typically both appear on advertisers' media plans. And rightly so. It's important to know the benefits of both pricing models, but ultimately it can be suggested that whether they stay on a media schedule is determined by that acronym that we all love the most-- ROI.
Chrysi Philalithes is VP of global marketing and communications at MIVA. .