Cost Per Action (CPA) Basics

CPA Marketing is in a nutshell a different style of Affiliate Marketing.

Most people are familiar with Affiliate Marketing, as a method by which we can deliver a prospect to a seller’s website, and if that prospect makes a purchase, then we can make an “affiliate commission” for delivering the buyer to the website.

Cost-Per-Action Marketing is very similar to Affiliate Marketing, except the “action” required in order for us to be paid, will not always be defined as an actual purchase.

CPA Marketing is rightfully defined by many to be a “pay for a lead” or “lead generation” program.

Many CPA offers only require a specific “action”, such as “email submit”, “phone number submit”, etc., in order for us to be paid.

Businesses that pay for these specific actions are looking to put more people into their sales funnels.

To put this more into a more understandable context, let me tell you about the marketing manager at a specific college in the United States. Now, I cannot tell you his name or the college that he works for, due to the fact that he asked and I agreed not to disclose his specific “identifying information”.

Most of us realize how expensive a college education is these days, but from the marketing side, this information may be very eye-opening for you.

At his specific college, he has a marketing budget that is equal to about $1000 for each student recruited to attend the college he represents. He admitted that at his school, he has a marketing budget that is much higher than most colleges and universities in the United States.

For every student they get enrolled into their scholastic program, they might have started with 50 prospects. If bidding on Google Adwords for those prospects, they might have paid Google $2 to $10 to get the prospect to visit their website.

Then they will have costs associated with marketing literature, actually talking to prospects via telephone, online chat and email, and perhaps even face-time when the student visits the college during the decision-process.

After working this process, year after year, marketing departments come to understand how much they can afford to spend to acquire a new student, how many prospective students they need to talk to in order to get one person enrolled, and what they can afford to spend at every step in the process.

In the case of my contact, the reality is that they tend to enroll one student for every twelve prospects with whom they communicate, when that process was discovered using Google Adwords.

That means that they can afford to spend $83.33 per person they bring into their “sales funnel”.

Leads from Google Adwords tend to convert better than leads from other sources, simply because the people finding his school in Google Adwords were specifically looking for his school.

With leads from outside of Google Adwords, he knows that they tend to convert only 1-in-36. That means that with this type of lead, he can afford to spend up to $27.78 per prospect.

As a result of having $27.78 to spend for each prospect in his sales funnel, he must make a determination as to how much he can pay for each lead, as it relates to all of his costs in his sales funnel, including all communications with future students.

When he makes his offer through CPA networks, he needs to allot funds to the CPA network and the CPA affiliate. And he will allot roughly 50% of his total marketing budget per lead to the CPA network and affiliate.

As a result of this process, he may choose to pay up to $10 for an “email submit” or a “phone number submit”.

Now that we understand how the “lead generation” process works, then CPA advertising should make a lot more sense to the average marketer.

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