Cost Per Action (CPA) in Affiliate Marketing - All You Need to Know

June 10, 2024
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Peter Nettesheim
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Cost Per Action (CPA) in Affiliate Marketing - All You Need to Know

Cost Per Action (CPA) is a performance-based marketing model. It involves compensating influencers or publishers based on specific actions, such as clicks, sales, or sign-ups, driven by their content. This model ensures marketers only pay for tangible results, making it a cost-effective strategy for maximizing ROI in influencer campaigns.

Cost Per Action and Affiliate Marketing Definition Explained

Affiliate marketing is the overarching term referred to when talking about performance based marketing where a publisher or content creator is compensated based on certain marketing KPIs. 

Cost per action (CPA) can be considered a subcategory within affiliate marketing referring to the specific earnings for the publisher or content creator based on certain marketing KPIs. As the term already says it is the cost (for the advertiser) and thus the earning for the publisher or content creator. This metric is often used to indicate the earning potential for a publisher or content creator and the involved cost for the advertiser. 

How to Calculate CPA in Affiliate Marketing

Calculating Cost Per Action (CPA) is straightforward but requires accurate tracking and data collection. To determine CPA, divide the total cost of your marketing campaign by the number of actions generated. 

For example, if you spent $1,000 on a campaign and received 100 actions (such as clicks, sign-ups, or purchases), your CPA would be $10. It’s essential to clearly define what constitutes an 'action' and use reliable analytics tools to track these metrics. Monitoring CPA helps optimize your marketing spend, ensuring you achieve the best possible return on investment.

CPA = Total Advertising Spend / #Conversion Events

The Importance of Cost Per Action in Affiliate Marketing

Cost Per Action (CPA) is crucial in affiliate marketing as it directly ties marketing spend to specific outcomes, ensuring accountability and efficiency. By focusing on CPA, businesses can allocate budgets more effectively, avoid wasteful spending, and hone in on strategies that lead to conversions. It also enables better measurement of an influencer’s impact on campaign goals, facilitating more informed decision-making and partnerships that drive tangible results.

What Companies Frequently Use Cost Per Lead as a Metric in Affiliate Marketing

E-commerce Businesses

E-commerce companies often use Cost Per Action (CPA) to measure the effectiveness of their advertising campaigns. By tracking actions such as purchases, these businesses ensure they are only paying for ads that result in sales, optimizing their marketing budgets.

Subscription Services

Subscription-based businesses, including streaming services and subscription box companies, rely on CPA to gauge the cost-effectiveness of acquiring new subscribers. This metric helps them focus on campaigns that drive sign-ups, ensuring sustainable growth.

Affiliate Marketers

Affiliate marketing networks and individual affiliates frequently use CPA to assess the performance of their promotional efforts. By earning commissions based on specific actions like clicks or sales, they can better understand which strategies yield the highest returns.

Mobile App Developers

Mobile app developers use CPA to track user acquisitions and in-app actions. Whether it’s installs, registrations, or in-app purchases, CPA helps developers allocate their marketing spend effectively and improve user engagement.

Online Gaming Companies

Online gaming companies, including those offering mobile games and online casinos, utilize CPA to measure the success of their marketing efforts. Tracking actions such as game downloads or deposits ensures they invest in campaigns that generate valuable player interactions.

Travel and Hospitality Industry

Travel agencies, airlines, and hotels use CPA to evaluate their marketing campaigns. By focusing on actions like bookings and reservations, these companies can optimize their advertising spend to attract more customers and increase revenue.

Events Which Are Frequently Used in Cost Per Action in Affiliate Marketing

Clicks

Clicks are a common action in CPA campaigns. Marketers pay influencers or affiliates for each click on a link or ad, driving traffic to their website or landing page. This metric is straightforward and easy to track.

Example:
An influencer promotes a link to an online store, and the marketer pays for each click on that link.

Sign-Ups

Sign-ups or registrations involve users providing their information to join a newsletter, create an account, or register for an event. This action is valuable as it helps build a customer database.

Example:
A company pays for each user who signs up for their newsletter through an influencer's promotion.

Sales or Purchases

Sales are one of the most critical actions in CPA campaigns, where payment is made only when a purchase is completed. This ensures the marketing spend is directly tied to revenue generation.

Example:
An influencer promotes a product, and the marketer pays for each completed purchase made through the influencer’s referral.

App Installs

App installs are crucial for mobile app developers. They pay for each user who installs their app, ensuring the marketing budget is spent on acquiring new users.

Example:
A mobile game developer pays for each install of their game through an influencer’s promotion.

Form Submissions

Form submissions include filling out contact forms, request forms, or survey forms. This action helps companies gather leads and customer information.

Example:
A marketer pays for each completed contact form submission driven by an influencer's campaign.

Downloads

Downloads of digital content such as eBooks, whitepapers, or software are another common CPA event. This action helps distribute valuable content and capture potential leads.

Example:
A software company pays for each download of their trial software initiated through an influencer's link.

Free Trials

Offering free trials is a way to attract potential customers. Companies pay for each user who signs up for a free trial of their product or service.

Example:
A subscription service pays for each user who starts a free trial through an influencer’s referral.

Cost Per Action VS Affiliate Marketing

In essence cost per action is a metric used within affiliate marketing. Affiliate marketing could be considered the overarching category while cost per action is a specific digital marketing KPI used within affiliate marketing. In an e-commerce related scenario most people associate affiliate marketing with a % of the revenue an influencer generates for a brand or business. However, the doesn’t always have to be the case as the affiliate compensation can be based on various different actions taken by a prospective customer which is why cost per action is used to keep track of certain conversion events. 

Offering a % of Sales

When engaging in affiliate marketing by offering a percentage of sales to influencers, the influencer earns a commission based on the total sales they generate. This model directly links the influencer’s earnings to the revenue generated, ensuring that they are rewarded proportionally to the sales they drive. It incentivizes influencers to promote the products effectively since their income increases with higher sales.

Example:

An influencer promotes a product and earns a 10% commission on each sale.

If the product sells for $100, the influencer earns $10 per sale.

With Influencer Hero you can create affiliate links and discount codes directly from a centralised CRM through which you can track clicks and conversions and compensate influencers based on a % of sales. 

Cost Per Action (CPA)

In a CPA model, the influencer is compensated for specific actions taken by users, such as clicks, sign-ups, or purchases. The payment is fixed per action, regardless of the value of the sale or the total revenue generated. This model ensures predictable costs for the marketer, as they pay a set amount for each desired action, making budgeting easier.

Example:

An influencer is paid $5 for each user who signs up for a newsletter.

The influencer’s earnings are based on the number of sign-ups, not the revenue from subsequent sales.

Relationship Between the Two

Both affiliate marketing with a percentage of sales and CPA models are performance-based marketing strategies. They share the goal of driving specific actions through influencer partnerships but differ in how the influencer is compensated.

Performance-Based Incentives in Affiliate Marketing

Both models reward influencers based on their performance, motivating them to drive meaningful actions.

Risk Distribution: Offering a percentage of sales shifts more risk to the influencer, as their earnings depend on the actual sales generated. In contrast, CPA shifts more risk to the marketer, who pays for each action regardless of final sales outcomes.

Budget Predictability

CPA offers more predictable budgeting for marketers since payments are fixed per action. Percentage of sales can lead to variable costs depending on sales performance.

Application Context: Percentage of sales is often used in scenarios where long-term customer value and higher ticket items are involved, making it beneficial for both parties. CPA is typically used for campaigns with clear, measurable actions and where immediate ROI needs to be tracked closely.

Challenges of Using Cost Per Action in Affiliate Marketing Campaigns

One of the biggest challenges when working with Cost Per Action is attribution and tracking. As in almost all cases in digital marketing attribution is rarely 100%. The same is the case when working with Cost Per Action - CPA. 

When using affiliate links and discount codes for D2C e-commerce brands for example the industry average attribution rate is around 70%. 

The reason we know this number quite well is because through our influencer agency Influencer Hero we worked on various international expansion campaigns using a brand new Shopify store and influencer marketing being the only marketing channel we consistently saw that around 30% is unattributed. 

So next time you are forecasting your budgets or marketing make sure to take this into account. Simply divide your tracked sales by 70% to get to actual sales. Rather you communicate this to your affiliate partners would be up to you but you essentially pay less than what they actually refer. This is however industry standard and most influencers and affiliate partners are aware that a certain % of referrals gets lost. 

Cost Per Action (CPA) VS Cost per Click (CPC)

Cost per click is a marketing KPI which is used to measure your marketing effectiveness. As the term already explains it is the cost you pay to receive one click. 

The main difference to Cost Per Action CPA is that CPC is often a KPI used to measure your marketing effectiveness in retrospective while the Cost Per Action is a set compensation structure agreed to with an influencer or publisher beforehand. Hence the advertiser would always per a specific CPA while the CPC can vary on various factors. 

CPC is a KPI often used for SEM (Search Engine Marketing) for example Google or Bing Ads while CPA is frequently used in partnership or affiliate marketing with influencers or publishers. 

Cost Per Action (CPA) VS Cost Per Lead (CPL)

Cost per lead could be considered a subcategory of cost per action as a lead can be a form of conversion measured in CPA. E.g. a lead could be someone who fills out a submission form for a free e-book. The CPL would be the cost of acquiring this lead. In case the lead is referred through an influencer or publisher your CPL in this case would be your CPA. Cost per lead is frequently used in B2B marketing. 

The difference between Cost Per Action and Cost Per Acquisition

Cost Per Action (CPA) and Cost Per Acquisition (CPA) differ in focus. CPA involves paying for specific actions, such as clicks, sign-ups, or downloads, making it versatile for various campaign goals. Cost Per Acquisition, also abbreviated as CPA, specifically targets customer acquisition, paying only when a new customer is obtained. Essentially, while both measure performance, Cost Per Acquisition is a subset of Cost Per Action, focused solely on acquiring new customers.

Conclusion

Cost Per Action (CPA) is a versatile and performance-driven marketing model that benefits both marketers and influencers by ensuring payment is made for specific, measurable actions. By understanding how to calculate CPA, its importance, and the various events it encompasses, businesses can optimize their marketing efforts and budgets. Leveraging CPA, along with related models like Cost Per Click (CPC) and Cost Per Acquisition (CPA), helps companies achieve targeted results and drive growth in a cost-effective manner.

FAQs
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