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What is Cost Per Action? - Definition & Advertising

Instructor: Beth Hendricks

Beth holds a master's degree in integrated marketing communications, and has worked in journalism and marketing throughout her career.

Why pay for clicks when you can pay for leads? In this lesson, you'll learn more about the cost per action method of advertising, how it works, why it's beneficial for advertisers and how it works for partners.

Cashing In On a Blog

Tammy has a sought-after local blog in her hometown of Atlanta. She uses the site to detail local happenings, new restaurants and favorite shops and stores around the community. Recently, she was contacted by an area magazine who wants to team with her website to solicit new subscriptions. The magazine has offered to pay Tammy $10 for every conversion that comes from an ad they want to place on her site.

This new form of online partnership to Tammy is a model known as cost per action advertising, and it can bring new business for brands and extra income for website owners.

What is Cost Per Action?

Cost per action, sometimes abbreviated CPA, is a form of online advertising where advertisers pay website publishers when a specified action is taken by a customer. All of that is a fancy way of saying that the publisher gets paid for promoting a brand or product when someone visiting their site completes an offer.

The concept of cost per action is one of the safer forms of marketing campaigns since the advertiser isn't out any money unless it receives a genuine lead from the publisher it has teamed with. It is sometimes called cost per acquisition, and is the distant, but more stable cousin of cost per click, where advertisers are charged every time a user clicks on their ad. The beauty of cost per action is that it takes the cost per click model and adds another layer of security: rather than an advertiser paying for a click that may not lead to a sale, a cost per action requires a consumer to take some kind of action - making a purchase, downloading an offer or signing up for a newsletter, among other things - before the advertiser shells out a penny from their marketing budget.

Where Do You See It?

Cost per action is most commonly seen in the world of affilate marketing. Affiliate marketing is a partnership between a brand and an independent website, where the website owner promotes the brand and earns a commission from the advertiser for its referrals. The difference is, affiliate marketers may get paid for marketing a business on their site, whether the visitors convert or not. In cost per action, the website owner only earns a paycheck on visitors who complete a desired outcome.

While the external website shoulders most of the financial burden of the cost per action arrangement, it can prove profitable for sites with heavy traffic or search engine popularity. The more people who visit an affiliate site and click on a publisher's link to complete an action, the more money the person behind the affiliate site stands to make.

Affiliate marketers are generally compensated one of two ways:

1. They receive a percentage of sales from referrals. Example: Affiliate marketer Janie receives five percent of the total sales in links from her beauty blog to Beauty Supplies 123.

Or,

2. They receive a flat fee for every click that converts. Example: Affiliate marketer Janie receives $50 for every one of her site visitors who clicks Beauty Supplies 123's ad on her website and makes a purchase.

How CPA Advertising Works

Imagine you're the marketing director for a mid-sized pet food manufacturer on the rise. You're trying to compete with the major players in the industry, and have decided to use cost per action advertising as part of your marketing strategy.

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