Cost Per Action: 5 Questions Before You Begin
Then there are those hardy souls who want to be paid well for business closed -- revenue for a specific action. Cost per Action or Cost per Acquisition (CPA) really could be the ultimate expression of performance -- if the actions can really be measured. In our experience, attaining this ideal isn't as easy as the concept. This raises a few considerations for marketers (as well as agencies and media) considering a foray into the world of CPA.
Can your system track source? CPA can only work if the marketer's CRM system can capably track the source of each lead. Months can pass from initial contact to eventual sale, and there are liable to be other contact points after a performance ad firm initiates the relationship. All parties need to be sure that credit is given where it is due.
Do you want to share information? Many marketers we speak with prefer not to give specific results of campaigns to third parties. In CPA programs, the marketer promises to reveal important financial information, i.e. how many accounts are opened or sales are made based on the performance ads. Are you willing to do this? Is your CFO? How will you build an audit track?
How do you manage the continuity? CPA programs are rarely one-shot deals. There will probably be an ongoing campaign to convert as many of the initial prospects as possible. Media might vary. How will the follow-up strategy work? Who will oversee all the creative for continuity programs? Who will manage the responses and coordinate with your database?
How do you set the price for a customer acquisition? Some marketers base the CPA on current account acquisition norms. If they're now paying $1,000 all-inclusive to get a new customer through other marketing means, they might offer $500 per acquisition for a CPA program.
Often, the price can be set through testing Cost per Action to Cost per Lead and Click. If 0.2% of $2 clicks convert, that's a $1,000 acquisition, as is 1% of $10 leads. There's a good horse race to see which provides the lowest cost of acquiring new business.
Should you vary the payout? Good performance marketing enables segmentation. Most likely, you'll offer your better potential customers a better set of benefits. If some customers are worth more than others, are you willing to pay more to get them? Incentives are powerful; consider paying your performance ad group more when they bring in a prime target customer.
These just scratch the surface of decisions you'll make when embarking on CPA. But, if you can comfortably answer these questions, you've gone a long way toward a potential ROI boost.