How To Avoid The Pitfalls Of CPA Marketing Online
When advertisers choose to engage in CPA (cost per action or acquisition) advertising online, there are several key areas that require specific focus to protect their brand and to acquire the highest quality of new leads through these channels. Although advertisers are often tempted to jump in head first, they should not do so without careful planning and due diligence to understand the space and players in it. In this model, the advertiser eliminates the upfront media risk and avoids payment based on impressions served or clicks generated, which do not take into account the number of orders actually delivered on a given media buy.
However, the downside of this performance-based model is that advertisers take the risk of what quality of customer or prospect they will pay for. The backend retention or churn rate becomes extremely critical, as advertisers evaluate whether this type of acquisition model is effective and scalable for long-term integration into their online marketing mix. An advertiser should approach this model with clear objectives, defining and optimizing performance metrics specific to the channel selected and the economics to make it profitable. This will take into account both the CPA paid at the time of acquisition and the quality of that consumer generated.
Below are the most important strategies that should be used by an advertiser who wants to take advantage of the very real and scalable volume available in the CPA marketplace without falling prey to the many risks that are also an unfortunate and inherent characteristic of this model.
Know and trust your CPA agency and/or media partner(s). The CPA marketplace is virtually a "blind" environment for advertisers in terms of what sites and types of placements will be used to drive new customers. In exchange for eliminating the media risk, advertisers give up much of the control over the actual media placement side of the equation. However, if you are working with a trusted partner(s), this will become a non-issue and the partner(s) will guide and educate you on how to utilize the channels successfully.
Limit the number of broker/network partners. Whether you decide to go the route of an agency partner or work with the media providers directly, it is best to limit the amount of media partners that you engage. This is particularly true of broker and large network partners. Why? There is a tremendous amount of overlap and cannibalization that occurs at the sub-affiliate level where these brokers and networks generate most of the volume for offers on a CPA basis. The logic of "the more people I have working on my behalf, the better" does not hold true in a CPA model. It actually creates a disingenuous situation for marketers and can have detrimental effects on the advertiser's ability to control pricing and volume in these channels. A single or sole source partner model will almost always yield the highest level of benefits (both cost & volume) to the advertiser if the right partner is chosen to manage this environment.
Use real-time credit card processing and data validation techniques during customer acquisition/sign up process. One of the biggest ways an advertiser can protect its business against incidences of fraud or payment delinquency by the consumer is to process credit cards in real time, instead of performing an authorization or Mod 10 verification process at the time of sign-up. The highest level of credit card validation with your merchant processor is the best method for confirming a true buying consumer. An example would be checking the credit card billing address against the card holder's name.
Many advertisers that fail in this environment do so due to a lack of real-time processing of payments for initial and recurring credit card transactions and/or a lack of data validation (valid address, city, state, etc.). A key to minimizing fraud in this environment is to only accept orders and customers that you can verify without any delay or offline processing.
Put parameters on your affiliates. There should always be parameters placed on your media partners in this channel. Do not go into this channel allowing free reign for your affiliate partners, or you will likely get burned. While "incentives" has become a dirty word over the last 18 months due to quality and fraud issues in the marketplace, there are legitimate strategies and incentivized media partners that, when used correctly, can effectively drive new customer acquisition efforts. It is up to advertisers to perform basic research and to put limitations on their affiliates. Two areas I recommend focusing on are the rules of engagement for the use of paid search on branded terms and the use of pure "cash back" incentive sites. These tactics can lead to costs that surpass acquisition costs and higher cancellation rates for new customers.
Create an offer that protects you specifically for this channel. Advertisers must create a compelling introductory offer that will drive the highest level of conversions and compete effectively in these channels; however, the offer should also protect the advertiser should the consumer cancel or not convert beyond the initial transaction. Consumer behavior is more impulse-driven in this environment versus other channels, like paid search. An advertiser should create an offer that balances the needed "skin in the game" by the consumer with a reduced first month charge, or has shipping and handling that also covers the upfront processing charges or the cost of goods sold. This protects the company should the consumer cancel after the initial transaction, and would result in, at minimum, a break-even position.
When all is said and done, advertisers will never be able to completely eliminate the risks that are inherent in the CPA marketplace, but by following the above guidelines, they can minimize these risks and devise strategies that will create an equitable balance between the risk and reward.