Affiliate marketing, as you are probably already aware, is where a third-party retailer pays you commission for traffic or sales referrals. The more people you send to buy a product from a retailer, the more money you get paid. It’s a great setup that allows people who run successful websites or blogs to supplement their income.
What Is CPA Affiliate Marketing?
CPA or “cost per action” affiliate marketing is a type of affiliate marketing model where you get paid depending on whether a user takes a particular pre-defined action.
Let’s say that a third-party company wants customers to fill out a form and they’re prepared to pay you a commission every time you encourage a customer to do so. That’s an example of CPA affiliate marketing. Likewise, a company might agree to pay you each time you get a customer to sign up for a free trial. Again, that would be an example of CPA affiliate marketing.
CPA affiliate marketing differs from CPC or “cost per click” affiliate marketing. With CPC affiliate marketing, firms pay you each time a person clicks an ad on your site – such as a banner ad – whereas, with CPA marketing, you get paid when they do something a company wants.
The Benefits Of CPA Marketing
It’s worth noting that CPC marketing tends to be lower down on the value chain, especially if you’re promoting physical products. Because a click doesn’t necessarily mean the visitor that clicks on the ad will go on to do what the advertiser/company wants. So the payout amount that you make can be small, but unlike CPA all you have to do is drive traffic to the advertiser’s website. Commissions on CPC campaigns can be as low as a couple of pence per click and sometimes even lower than that.
With CPA affiliate marketing, however, you’re often higher up the value chain because the companies that use CPA as a marketing strategy typically have fatter margins to play with. For instance, software companies often offer customers a free trial. Software firms know that when a person signs up to a free trial, there’s a good chance – perhaps 60 percent – that they will then go on to sign up to the product. The firm, therefore, pays you a percentage of the expected value of the “action” that the customer takes (signing up to the free trial).
Of course, the amount of commission you get is usually much higher than it is when marketing low-margin products.
Let’s say that the price of the software product is £1,000 and that the customer has a 75 percent chance of buying it, on average, when they sign up for a free trial. Now suppose that the margin on the sale is 50 percent and that your commission is 25 percent of the margin. The math comes out as £1,000 * 0.75 * 0.5 * 0.25 = £93.75. So you get paid just over 9 percent, of the total revenue of the product to the firm, which could mean much higher revenue compared to a CPC campaign.
The other benefit of CPA is that you don’t have to wreck the aesthetic of your site with ugly and intrusive banner ads. CPA advertising is often a lot more subtle than CPC and works particularly well with native advertising, allowing you to deploy it seamlessly in your content.
So, with CPA, you can do two things: improve the user experience of your site and increase the amount of money you can make through affiliate marketing.