Cost Per Action (CPA) is a critical metric for brands of all sizes, no matter if the brand is young or has been established for many years. With affiliate being one of the lowest CPA marketing channels, it’s easy to see why more brands are progressing toward affiliate marketing’s CPA model.
In this post, we’ve outline what CPA is and means within the affiliate model and how this compensation structure helps you optimize the performance of your program and partnerships.
What is Cost Per Action?
In the affiliate model, CPA is a compensation strategy which allows a brand to pay their partners on a specified action. Cost per action also conveys how a partner is paid or compensated.
For example, in the affiliate model, a brand might pay their marketing partners for generating a new customer, driving a high-value lead or on a sale.
What Brands Look For in CPA
While CPA goals and their specific KPI’s vary widely between brands, all companies generally want a low Cost Per Action.
Brands operating in a beginning growth stage are typically concerned with lowering costs across the board simply because the traditional marketing channels they utilize outside of affiliate tend to steadily increase in cost.
For instance, brands looking to grow their consumer base and brand awareness will often start off their marketing by running paid social and paid search campaigns. However, over time, what many discover is that it becomes increasingly expensive to realize the same or similar results from these marketing channels compared to what they were getting in the first few years of their marketing.
Once these younger brands have established a steady customer base and stronger brand awareness, the next natural step for many of them is to launch an affiliate program. In doing so, they’re often better able to focus on refining and even diversifying their affiliate partnerships and growing their customer base more strategically and cost-effectively, with a lower CPA.
Larger, established brands, however, are typically more concerned with optimizing and refining the partnerships and CPA compensation structure within their affiliate program. As they typically have strong name recognition and a solid customer base, their CPA priorities are often related to incrementality and customizing compensation to reflect the unique value different partners bring to their program.
How CPA Plays into Testing Partnerships and Strategies
In a CPA model, a brand only pays their partners after those partners deliver on a pre-defined action.
Through an affiliate program, brands can test new campaigns with new partnerships much more cost-effectively while only paying after desired results are achieved.
Additionally, the program management team works to find creative, high-value partners that can help a brand efficiently reach their goals – be that more sales, high-quality leads or new customers. Testing is often an essential part of this process.
For example, many brands run their influencer marketing program through their public relations team and compensate these influencers with either a flat fee, a free product to review or both. However, this compensation is typically provided to the influencer up front, before
results have been driven. This type of partnership structure can also be difficult for brands to scale, so they tend to only work with a few larger influencers and turn away others that may have a smaller following, even if it’s a loyal one.
What we’re now seeing more of are brands bringing these influencers – especially “micro-influencers” – into their affiliate programs. Not only is this a more scalable, efficient way for brands to work with these partners, they’re also able to compensate them on a CPA model. For some brands, this means that in addition to
providing the influencer with a free product or flat fee up front, they also pay them commission on the back end after
they’ve driven a result (action).
Continued testing of these partnerships might include monitoring the performance of the long-tail content that these influencers generate and testing out new, more creative campaigns.
An important component of any partnership strategy and testing is communication. To ensure alignment between a brand and their marketing partners, the partner must understand what the brand’s KPIs and goals are so that they can align their efforts with them.
As the affiliate industry evolves, creative, “non-traditional” partnerships are leading the way. Partnerships that transcend traditional boundaries not only include influencers, but also in-store, referral programs, business development deals, brand-to-brand promotions and beyond.
How Brands Hold the Reigns within the Affiliate CPA model
A brand gains greater insight into its CPA-based program through utilizing affiliate technology. These technology platforms are what gives brands visual reference into the actions taken by their affiliate partners.
Depending on what technology platform a brand decides to use for their program, most, if not all, marketing actions taken by the affiliate can be tracked by the program managers to ensure they are compliant with the brand’s terms and conditions. If, for example, certain affiliates’ actions are questionable, the program manager can flag it for further review. If it’s determined that the affiliate’s activity was indeed fraudulent or misaligned with the program terms and conditions, payment to that affiliate can be reversed.
This type of compensation control is rarely possible with other types of marketing channels as most use an upfront, flat-fee payment model.
Progressing with CPA
Brands want transparency into how their marketing dollars are being spent and the results those efforts are generating. What makes this possible within affiliate is the model’s cost per action compensation structure.
For greater insight into how the CPA compensation model gives brands more control over how they pay their marketing partners, check out our Outperform podcast episode, “What Brands Need to Know About Cost Per Action in Affiliate Marketing.”