How to Track Online Marketing ROI Using Cost-per-Action
By Rick Crosby
Posted Tuesday, October 5, 2004
If youre like most businesses, impressions, clicks, and page views are simply a means to an end. (In fact, without corresponding sales conversions, theyre nothing more than unjustifiable expenses.) If you only earn revenue from sales, you need statistics linking costs and sales. In other words, you need to measure cost-per-action (CPA).
Cost-Per-Action (CPA)
In a CPA campaign, you run an online ad on third party sites and they charge a commission when a lead is generated or converted. Its performance-based pricing. This means the publisher wears most of the advertising risk, as their commissions are dependent on good conversion rates.
Perhaps the most widespread use of CPA is affiliate marketing. With affiliate marketing, you determine what actions you will reward and how much youre willing to pay per action. For example, you might engage an affiliate site to promote your business. If they generate sales for your business, you can pay them a commission. Your cost-per-action would then be the cost per sale or lead generated.
Tips on Conversion
The following conversion tips will help you plan your CPA campaign and avoid some common pitfalls.
1) How are sales and leads recorded?
For many businesses, the obvious result which constitutes a conversion is a sale. If your sale is recorded or registered online (e.g. e-commerce), it can be considered a measurable action. This means you can choose a sale as the desired action in your CPA campaign.
Depending on the aim of your campaign, you may want to measure other outcomes in addition to, or instead of, sales. For instance, you might measure leads in the form of membership registrations, newsletter subscriptions, software downloads, or just about any other activity beyond simple page browsing. So when your customer clicks register, or subscribe, or download, etc., the conversion is automatically registered and the details are fed back youre your CPA campaign.
In either case, at any time, you can log in and view your campaign results in real time.
2) Set up a landing page to capture lead contact details If youre paying for leads, you obviously need to know when a lead is actually generated. Generally a lead becomes a lead only when the customer supplies you with their details (name, contact numbers, email, etc.). This means you need to set up a landing page on your site capture these details. Your capture page can be collect contact information or it can be as simple as a signup for a monthly newsletter.
3) Get your CPA provider to set up your landing page
If you dont have the time, inclination, or resources to set up the necessary forms and database on your own site, the CPA provider can do it on their hosted server. They collect the leads and calculate the statistics. For many businesses, this is the ideal option because it saves them time and money, and there are no tracking discrepancies.
4) Find a CPA provider you can trust
If your CPA provider will be collecting leads and calculating statistics, you need to know you can trust them. There are plenty of trustworthy providers out there; you just need to find them. A trustworthy provider will find out what your exact needs are and spend time researching your niche market online. By performing this marketing analysis, your provider will be able to tell you exactly how much business they can bring you on a daily, weekly, or monthly basis. If they cant provide you with this important information, then this is a good indication that you are not speaking with a professional internet marketer.
Just as importantly, with a trustworthy provider youll be able to personally speak with the internet marketer who will be working on your project. This person will be an expert in the field of internet marketing, not just a sales rep.
5) Avoiding excess fees
WARNING: Some CPA providers charge a setup fee ($2,500 to $10,000) and/or a network fee (20% to 30%) for each sale or lead that is generated. Before committing to a provider demanding high fees, make sure you are getting more for your money. Most of the time high fees simply mean the sales rep is getting a higher commission!
6) Measuring your conversion rate
The Formula for measuring CPA is by dividing the total cost per advertising campaign by the total number of actions (conversions) that were received from each ad campaign. For example, if your online ad campaign costs $1,000 and generates 50 sales or leads, your cost per action (CPA) is $20.00 each.
7) Improving your conversion rate
A high conversion rate depends on several factors:
Visitor Interest Level The interest level of the visitor is maximized by matching the right visitor, the right place, and the right time.
Offer Attractiveness The attractiveness of the offer includes the value proposition and how well it is presented. TIP: Small, impulse items typically have a higher conversion rate than large shopping items.
Ease of Process The ease with which the visitor can complete the desired action is dependent on site usability. Important considerations here include intuitive navigation, contact info capture page, Buy Now or Apply Now buttons and fast loading pages.
In summary...
Because CPA allows you to identify exactly how much it will cost to acquire a customer, theres no guesswork involved. You have the ability to precisely calculate your ROI. And because online tools and ad serving technologies allow you to monitor effectiveness in real time, you can even tweak campaigns while theyre still running. If you can master effective online advertising, youll not only save thousands in implementation costs, youll also reap the rewards of a far higher return on investment.
About the Author
* Rick Crosby is CEO of a full-service internet marketing and online advertising agency, MarketingWebTraffic.com. Visit (http://www.marketingwebtraffic.com) for further details or contact Rick directly at 727-490-5739 or email rick@marketingwebtraffic.com
