Where the Action Is: CPA or CPC?

By Kaitlyn Smeland Dhanaliwala | Jan 25, 2008
More Articles by Kaitlyn

Aaron Goldman of Search Insider recently posted his thoughts on whether CPA (cost per acquisition or cost per action) might soon replace the CPC (cost per click) pricing model in paid search. He presents some interesting ideas about what industry forces could lead to a trend toward CPA pricing, but in the end he does not conclude with a simple ‘yes’ or ‘no’ answer. In fact, he admits his initial thoughts on the topic were “CPA is never gonna happen.”

In his post, Goldman points out the benefits which could be gained by the many players in the industry under a CPA system. But I can’t help thinking of just a couple of its major potential disadvantages. Here’s why I think CPA is “never gonna happen”:

(1) A CPA pricing model would obviously be most attractive for advertisers, but it would hold the search engines and search engine marketers accountable for factors outside of their control.

(2) There are certain “invisible” actions at work through paid advertising which cannot currently be quantified and billed, but which nonetheless provide value to advertisers.

So which conversion rate factors are typically out of the search engine’s and SEM’s control? Let’s take a look at exactly what each player does:

*The Search Engine- Indexes the web, makes it searchable, has attracted the searchers who regularly use it, and delivers impressions to searchers who are already in a focused “hunt” mode once they see the relevant ad. All of this is valuable to the advertiser.

*The SEM Professional or Agency- Writes compelling ad copy, picks appropriate destination URLs, targets campaigns and ad groups to relevant keywords, monitors performance and makes strategic adjustments, educates the advertiser/client, etc. This is also clearly valuable to the advertiser.

*The Advertiser- Page design and site usability. These factors clearly contribute to conversion rate post-click and can really only be controlled by advertisers themselves (…unless contracted out to a professional- There is no doubt that coordinating web design and SEO with paid advertising efforts has the potential for producing great results in terms of conversion rate and cost effectiveness. Janet Driscoll Miller writes in more detail about the similarities and differences between SEO and PPC conversions here).

Many SEM agencies, like Search Mojo, currently offer both PPC and SEO services as well as landing page design. Some clients only take advantage of one option, and depending on their long- or short-term goals this is often appropriate. But under a CPA pricing model of paid search, things would change for paid search experts as well as advertisers looking for paid search services…

If the industry were to move to a CPA model, I think we would see SEM professionals who currently only offer PPC management moving to expand their services to include SEO and website design. In fact, in order to ensure profitability under a CPA pricing model, SEMs would almost have to insist on also taking control of as many post-click website variables as possible before agreeing to take on a CPA account. And let’s face it- many advertisers would not be willing to give up that control.

But even beyond website design and usability, there are certain basic marketing elements which will always influence conversion and can only be controlled by the advertiser/client. Pricing, quality, value proposition in the competitive landscape, existing brand equity, inventory management, the security of the checkout process, the length of the form required to register for a newsletter, the product color selection… How could SEM professionals or search engines ever control these variables? And, really, what advertiser would ever put those decisions in anyone else’s hands?

In addition to all this, I think there is also a great deal of value in being able to learn from traffic to your site which does not convert. Some browsers who click through may just be “shopping around” for information- if they leave without buying, they may return later to buy after cookies have expired. Or your brand image may have been improved or strengthened in their minds after the visit, and they’ll be more likely to think of you in the future.

The PPC model allows for experimentation and getting to understand the nuances of your customer segments. With the aid of analytics software, non-converting traffic can provide insight and direction for which web design elements might need revision. None of these would be considered “actions” which could be quantified and billed for, but they certainly are examples of the ways in which paid search under the PPC model can be valuable to an advertiser. Could a CPA pricing model improve on CPC in these ways?

Of course, certain industries would lend themselves more to a CPA model than others. And certain types of actions would be easier to control pre-click. I’d be interested to see what advertisers and SEM agencies experimenting with CPA think of the whole issue…

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