The battle of online metrics
May 22nd, 2017
CPA vs CPL: the classic dilemma for digital marketing professionals.
CPA (cost-per-acquisition) vs CPL (cost-per-lead):the classic dilemma for digital marketing professionals. The question that is constantly popping up is 'which is better'? The alphabet soup of marketing credentials causes plenty of agonising over deciding which payment model to choose and what goals to set for the digital marketing campaigns. CPA and CPL are both extremely popular and work in similar ways, but let's find out what each of these models mean and how effective they are.
What is Cost Per Acquisition (CPA)?
Cost Per Acquisition is when you promote another company's products or services to your visitors. If an action is taken, such as a product being brought, newsletter sign up, registration, etc. you would then get a percentage of that sale. Essentially, you will receive payment only when a sale is completed.
What is Cost Per Lead (CPL)?
Through the Cost Per Lead model, you will get paid by an advertiser when a potential consumer visits your website, clicks the ad, and then independently take further steps of action e.g. signing up to membership or reward programs. After all these steps are taken, only then will this be classified as a qualified lead.
The main difference between CPA and CPL is that with CPL you are paying for an initial action to be taken instead of a sale being completed, whereas with CPA the opposite is true. The difference is obvious enough, but which performance marketing model would work best for you? Let's now explore some differences between these two models so you can select the best for your business.
With the CPA model, you are simply using the tactics at your disposal to make sure that consumers are buying the product or service. Usually, this means that you are sending a blast email and/or using other types of advertising tactics until the prospects either buy the product or opt out.
While the CPA model is perceived as a one-way communication tactic, the CPL model is a two-way communication channel. With CPL, you can speak more freely with your targeted prospects as well as having the ability to get their feedback, in which you can use to either change or improve the product or services you are offering.
Risk vs Reward
Using the CPA model, you instantly get the conversion. Since you only pay upon a lead making a purchase, you will only incur costs when leads convert and revenue is generated. This is a commonly used model if you are selling a high-volume and low-priced service or product. The advantage? If the campaign does not perform well, there will be no costs.
On the other hand, when applying the CPL model, you are just paying for the lead. To offset the fact that the costs occur upfront before a lead has converted, this cost is comparatively low, leading to higher profit margins. The risk of this is that not all leads will turn into successful conversions, due to some leads not meeting the requirements or being invalid.
Lifetime Value vs Immediate Sales
Lifetime value refers to the amount of profit that was paid by a consumer when purchasing your services or products throughout their lifetime. With the CPL model you can build a stronger relationship with consumers, since there is less immediate pressure for the company to get the lead to convert, so the customer will be free to engage with the company on their own terms rather than feeling forced into an offer. They can engage with the company's offers under circumstances that suit them, which in turn leads to more pleasant experiences with the company and a potential for repeated business and long-term custom.
The CPA model can be seen as a forced approach. Although you may be able to get prospects' attention and interest, it does not mean that they are likely to return. This is due to the aggressive approach decreasing the lifetime value of the lead. Nevertheless, this approach is very effective because it does the job - you are paying to get more sales and that is exactly what you pay for when you adopt the CPA model. Additionally, this model allows you to generate more traffic to your website because the prospects would normally have to visit it to purchase the product or service.
Which one is the best?
By reading all this information, you're probably thinking that CPL is the obvious choice. This is not the case however. Each campaign will work best in many ways so if you are just using one of these two models, then you are limiting the amount of revenue that can be generated. As a business, you want to generate as much ROI as possible, and therefore you should not stick with one model but test other methods. This means mixing it around a bit. For example, you may use a CPL model for one live campaign while using a CPA model for another, or you may even run a campaign in which both models are used simultaneously. By doing so, you can enjoy the benefits that both approaches offer, without fully exposing the campaign to the drawbacks of either. Boost your chances of making a great financial investment by working with both models!