The Benefit of Having An Online Effective Cost Per Action

The Benefit of Having An Online Effective Cost Per Action
Chief Marketer
Marketers have gotten used to the accountability of the cost per action (CPA) pricing offered by online ad networks. Industry luminaries like Satya Nadella, senior vice president of Microsoft's search, portal and advertising platform group, predict the model will reach more channels moving forward.

Check out some of his comments in the August 19 CNet story, Microsoft sees tailored search as a way to pierce Google's armor. In the story, Nadella says, "CPC (cost per click) is fantastic. It will remain. But there will be additional things (such as) CPA. We think that will bring (the) next level of efficiency to the search marketplace. We're very bullish about that."

Even better, chief marketing officers don't have to wait for the industry. Their teams should already be measuring ROI for all online media and backing into an effective CPA to enable accurate cross-channel comparisons and more informed budget decisions.

Boiling media buys down to an effective CPA answers the question helps marketers determine the cost of generating a lead or sale. This is true regardless of how the advertiser paid for the media. Although it does involve some analysis, determining an effective CPA is simple. Plus, once marketers put the infrastructure in place to crunch the data and discover the metric, the work continues to pay dividends by way of more effective advertising, better ROI and smarter budget allocations.

The more online channels a marketer employs, the more important it becomes to effectively understand each channel's CPA, and it's common for marketing teams to hit several online ad channels simultaneously. Whether the money is being spent on search, affiliate, contextual advertising, ad networks, exchanges, videos, banner ads or social media, looking at your CPA across all channels gives you a metric that you can use to make a true ROI comparison.

Nobody should question the benefit of casting a wide net, particularly when marketing products or services with mass appeal. Employing a wide range of online advertising channels provides a number of benefits for marketers. It helps them fight inflation of search costs, expands a program's reach and provides valuable insights on the most effective ad channels.

The wider the net, however, the more important it becomes for marketers to demand more than simple, channel-specific ROI metrics. Marketers need to do more than optimize a single advertising channel in isolation. They need the ability to compare apples to apples to determine the most effective share of budget for each of those channels and ensure the best advertising opportunities receive adequate resources. This means marketers can pay for ad impressions (CPM) in one channel, pay for clicks in another, pay for actions in still more and be able to accurately weigh each channel's effectiveness against the others despite their different pricing models.

Having a consistent CPA allows marketers to buy online media according to any pricing model, track some of the usual metrics, and boil the ROI of each channel down to one like metric that reflects the success of each effort and enables accurate channel-to-channel comparisons. CMOs should be sure their teams employ the effective CPA metric for their online media buys or get a great explanation as to why they do not. It won't work in every situation, but with the right methodology in place, it certainly works in most.

At its most basic level, the process for determining an ad channel's effective CPA consists of a three-step process:

1. Look at your spend across each channel
2. Track conversions for that channel
3. Compare your cost per conversion against the Lifetime Value of that Conversion

Innovative tools are consistently emerging that help marketers analyze and optimize their conversion metrics. Marketers looking to equip their teams with some automated analysis and optimization tools to better manage spend and increase conversion rates should consider Clickable, Amadesa or CrazyEgg.