What is the Cost per Acquisition in digital advertising?

What is the Cost per Acquisition in digital advertising?

CPM (Cost per Thousand of impressions) is a common measurement used in television, radio, and traditional print advertising. Pay per Click (PPC) is a model that was born with online advertising. Search engines, such as Google, use PPC to charge per click on ads. On-line media companies (i.e. Google, Bing, Yahoo) use both CPM and PPC to sell on-line advertising.

The issue:

The issue with CPM and PPC is that they are not based on results. Hence, it is completely possible to invest thousand or millions of dollars in advertising without a positive return on investment. This issue becomes more relevant as click fraud and web-site traffic fraud become a common issue in the on-line advertising industry.

Web traffic fraud or click fraud is a real issue that has not been resolved possibly  because on-line media companies and their networks make serious money.

Click fraud occurs in several different ways:

Budget Attack: is designed  to deplete your daily budget and create space for competitors at a lower rate.

Most Pay per Click models work based on your bid per click. The higher your bid, the more probable you will appear in the top spots. So after a daily budget is reached, the ad is removed from the search engine. And with less competitors, the biding dollar amount is minimized. It does not bring direct revenue to the competitor, except that he can increase your cost of acquiring a new customer and lower his.

Click Farming Attacks:  This occurs when websites which run the ad try to generate maximum revenue by clicking on the ads in their website. They can even engage third parties to do this (incentive click traffic). This is really hazardous for the advertiser as he loses money for the clicks received on his ads without this translating into additional sales and revenue. This type of fraud is a real issue in Facebook.

Conclusion

Click fraud is a real problem and quite common in today’s online world and if you are a small business owner, then you need to be aware of it in spite of what the big search engines say -trying to minimize web traffic click fraud. Be aggressive and proactive in protecting your ad campaigns from being attacked by those who make small fortunes. Google and the likes have tried to address these issues by including a cost per conversion in their Google adwords. However, they have falling short of completing this task.

Cost Per Acquisition on the other hand is a method of advertising whereby the advertiser only pays when an advert delivers an acquisition. Moreover, CPA is very effective for an advertiser to pay because they only pay when the advertising has met its purpose.

The reality is, large on-line media companies do not want to get involved with assuming the risk related to the offer – they don’t have to, and will only consider CPA offers when talking about top Level Brands with a long relationship with them and huge budgets.

Some on-line media business models have already implemented advertising programs which in essence are based on a Cost per Acquisition. Examples of this are “Living Social” and “Groupon”. Basically, they sell your product at a 50% discount and split the 50% received with the business promoting the product. This models gets customers in the door and creates a prospect for future business. There is no up front cost. Your cost is basically the discount on your product.

At Helpnet we believe that as small business advertisers become educated and begin to demand advertising based on CPA, it will  become the standard model for online advertising.  Everything else is a dead model.

 

Interesting articles:

  • http://techcrunch.com/2009/06/26/facebook-click-fraud-101/
  • http://webtrafficfraud.com/
  • http://en.wikipedia.org/wiki/Cost_per_action
  • http://www.theregister.co.uk/2009/06/22/facebook_click_fraud/
  • http://humandmt.com/living-social-and-groupon/
  • http://www.openforum.com/idea-hub/topics/money/article/top-10-reasons-your-website-is-losing-sales