Why CPC Sucks

We need to have a talk, marketer to marketer -- and, Google, I'll need you to step out of the room for a minute.

We've got a problem here.

Google has trained an entire generation of us to believe that the only cost structure that is at all fair is cost-per-click, cost-per-acquisition, cost-per-action, or some variation thereof.

"It's just 50 cents!" they seem to say, innocently. "And you don't even pay it unless it's actually working!"

But there is a reason that Google's market cap sits somewhere north of $170 billion. It is not because it's only 50 cents. It is because it's fifty cents every single time something happens.

We have entered an era of insidious and all-pervading ticket-clipping. Media companies are no longer content to supply eyeballs at a flat rate while we enjoy all the upside. Instead, you've got yourself a revenue share partner, like it or not -- even if you have no rev.

What could be wrong with this picture? Sounds ideal, doesn't it? We marketers don't pay if the advertising is ineffective. We don't pay while it's not producing money for us. We can work out our business models to seven decimal places.



Like I said, insidious. Because, while we only pay if they're doing their job, the reality is that the better you do your job, the more you have to pay. It makes it cheap to enter the market, but when you succeed, you end up paying through the nose.

I've recently come across a few companies that are toying with versions of the CPC model. There are two main variants: one in which there's an unlimited cost-per-action element, and one in which the total cost of the campaign caps out at some pre-determined number.

Marketers, we can't afford the first.

With Google, we know we can turn the tap and get new customers. The problem is that, to get new customers, we must turn the tap. But what we need is the possibility of the organic, the unpaid, the word of mouth, the (dare I say it) viral.

That's why paid campaigns and SEO need to go hand-in-hand. That's why if someone offers you a new channel and says it's entirely CPC or CPA, now and forever, your response should be, "Why wouldn't I just spend that money with Google?" There has to be an upside, a point at which the runaway success of your product lets it actually run away from its costs of acquisition.

The Google structure works really well where the lifetime value of a customer is known and relatively stable. For a start-up, it's a mixed blessing. On the one hand, it provides infinite data, total granularity, and a despotic level of control over how and where the money gets spent. On the other hand, start-ups tend to be in a highly uncertain and variable environment for how they monetize -- and they're pegging costs to acquire against lifetime values that can take a year or more to become clear.

The cost-per-action model is not really different from the SaaS model, or the royalty system, or a subscription service. It is a model in which the supplier says, "I don't know how you're going to use my product, but I retain the right to keep charging you for it in case you figure out something really clever."

But sometimes you just want to buy something off the shelf, and own it outright. Sometimes you have to recognize that your product itself is bringing customers back again and again and getting them to spend -- and that, while CPC brings them horses to water, it sure don't make 'em drink.

Thoughts? Let me know in the comments or on Twitter.

6 comments about "Why CPC Sucks".
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  1. Kathy Sharpe from Resonate Networks, June 3, 2011 at 12:45 p.m.

    CPC has led the industry down the wrong path, cutting us off from branding dollars and draining the creativity out of online advertising.

  2. David Carlick from Carlick, June 3, 2011 at 2 p.m.

    Advertising dollars will drift inexorably to channels where marketers can get some measure of return.

    Many marketers prefer to exchange the risk of advertising for a known return (CPW).

    All response marketing uses creativity, from media planning and execution the the creative units. Many creatives chafe at the restriction of tangible results; others thrive when the goals are defined, and the 'creative' does have an impact.

    The harder problem is attribution -- can 'creative' branding exercises actually lift results from the response-measured side, and the evidence is accumulating it can, and can be measured.

  3. David Jaeger from Global SEM Partners, June 3, 2011 at 2:09 p.m.

    Sorry, completely disagree.

    Nothing wrong with the model Google has created. It's just a shame that Google's done it better than everyone else.

    Google shouldn't take the hit for a business owner trying to get their business off the ground. Many business owners used to spend years figuring out LTV's, and getting their business from struggling to profitable. That's part of investing in building a busines. If you can't afford Google or other CPA methods, find yourself a better alternative.

    Don't lean on Google for your own challenges. Seriously, I appreciate your frustration. But the time would be better spent teaching us how you're learning to evaluate LTV's (quickly).

  4. Craig Mcdaniel from Sweepstakes Today LLC, June 4, 2011 at 12:48 a.m.

    I do extremely well with the old fashion billboard pricing. This a set monthly fee for a text link or banner. We go one step farther. We count sweepstakes click through and not views. My job is to get the member to the sponsor's site. If they have a great sweep or contest, the sponsor get's the same deal as if the sweep has poor prizing. It's that simple.

    Last... We don't do business with the Social sites. Mainly Facebook and Twitter. If the sponsor's wants us to publish a sweep on one of those sites we will. However the number of entries will always be lower than if they put the sweep on their own servers.

    This is the real problem. Sponsor's should be doing more to support their own sites and brands instead of Facebook.

  5. Rick Monihan from None, June 6, 2011 at 9:53 a.m.

    I agree with David Jaeger. If someone has created a model that both works and they're good at making it work - then you really can't complain about the success.

    I'm not a fan of CPC. I think it discounts the many other values provided by advertising and simplifies it into a "there is only one meaningful action that makes this worthwhile and I won't pay much for it" approach to marketing and advertising.
    CPC diminishes the value of brand recognition and awareness and shifts the distinction from "call to action" to "immediate action of some sort even if it isn't acquisition".

    From this standpoint, I agree that Google has created a model that may "work", but sends misleading signals while creating a generation of advertisers who aren't focusing as much as they should on more than one (possibly less than meaningful) metric.

  6. Beth Neibert from Beth Neibert & Associates, LLC, June 7, 2011 at 7:20 p.m.

    I found this article to capture my perspective about CPC marketing versus "word of mouth" (or in today's technological environment, I call it "social media) methods.
    With the advancements in SEO and syndication tools, the methods that were used to capture clicks and get paid for it are not as relevant and there are so many other methods via Affiliate marketing as well as branding and marketing your own products to sell. The internet is a wealth of success opportunities. Thanks for the article and the opportunity to share it (already did on my fan page). I'm looking forward to more conversations your article will likely generate.

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