In order to determine what the return on your investment is in your display advertising campaigns, most marketers only need two variables: the anticipated revenue generated from the advertising campaign and the cost of running the advertising campaign. By subtracting the cost from the revenue and dividing it by the cost, you can get a good idea of the percentage of return on your investment. However, this can be a rather simplistic model, particularly if you have no idea what the anticipated revenue might be. How do you then know what to budget or even if it yield results? The answer lies in three other variables that you must understand to better price your online display advertising efforts: the conversion rate, the traffic you attract, and the average amount of your order per conversion. Use these with either a PPC or CPA campaign type to determine what is best for your business.
The Difference Between PPC and CPA Campaign Pricing Models
To figure out how effective a campaign might be versus the cost, start with one of two pricing models:
Pay-Per-Click (PPC) Display Advertising – The conversion rate will depend on how well you picked keywords, but PPC tends to be very effective and the most expensive format to buy since you pay for each click on a keyword phrase of your choosing, which brings a potential buyer to your website, whether they convert or not. However, if your average order is high, you could generate handsome profits with the amount of traffic you obtain from PPC, even if some of that traffic never converts.
Cost-Per-Action (CPA) Display Advertising – Pricing for CPA is not for clicks, but rather the action taken. You pay for marketing leads (filling out a survey or contact form) or conversions. CPA campaigns are often set up as affiliate programs where you track the referral id and then give credit to the affiliate advertiser for a marketing lead or conversion. Traffic may be low to start, lowering the overall number of conversions.
Controversy of Pay-Per-Click Versus Cost-Per-Action Display Advertising Campaigns
There are marketers that favor either in both camps. Those that favor PPC will tell you that you get instant traffic with PPC, where it might take quite a bit longer with a CPA campaign as it relies on individual affiliates, not Google, to drive your advertising campaign. You don’t have to create an ad format for PPC, you just fill out your keywords and put in the sales blurb, and Google does the rest.
Marketers who favor CPA will be quick to point out that paying for every click on a link is “not fair” especially if you don’t get a lead or a conversion and that people can game the system by clicking on your links when they never have any intention to buy. This would produce excellent revenue for Google, but nothing for the campaign. They also suggest that you can end up spending more on PPC campaigns, if you’re not careful, making it hard to stick to a budget and the likelihood that your ad is placed in an advantageous position compared to other competing marketers is low when it comes to high competition keywords. So, which is better?
It All Depends on Your Business
If you are a new business trying to generate traffic, then it might be in your interest to start off with a PPC campaign to get noticed by Google right away. If you are trying to keep costs down and already have enough traffic, then a CPA campaign may do the trick.
