Avelon wins Best Value, Best Functionality & Features, Best Ease of Use and Best Customer Support on Capterra. CPA vs CPC: Which is better for your business?
There are many methods of acquiring new customers, but utilising paid channels typically fall into two categories: cost per acquisition (CPA) and cost per click (CPC) – also commonly referred to as pay per click (PPC).
Cost per acquisition, in its simplest form, means you only pay for a customer once they have been acquired and falls under the affiliate marketing channel, whilst cost per click entails paying for every user that interacts with one of your ads such as Google Shopping or META ads and falls under the paid advertising channel.
Both the affiliate marketing and paid advertising channels have their own unique advantages and disadvantages. In this article, we’ll uncover which channel is best for your business and how you can utilise each channel to drive significant revenue.
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What does CPA (cost per acquisition) mean? Examples of CPA
Cost per acquisition (CPA) means that an advertiser only pays for a specific action that a consumer takes. These actions or conversions can be defined as a purchase, sign-up or lead generation such as a contact form submission.
The most common form of using CPA in a marketing funnel is in the form of an affiliate program. Affiliate programs ensure advertisers (retailers/brands) only pay on a performance basis and don’t have any form of payment upfront. The affiliate simply promotes an advertisers product or website and if a conversion occurs off the back of their promotion, they earn a commission. Think of it like having a digital sales time who work purely on commission.
Affiliate programs allow the advertiser to personalise the commission offering to every affiliate. These personalisations can be top level such as offering certain affiliates different commission rates vs changing commission rates depending on the traffic source.
An example of utilising CPA in your marketing funnel could be Sigma Sports. Sigma Sports partners with affiliates, publishers and content creators to promote specific products on their website. When an affiliate generates a sale through traffic, they pay a commission to the affiliate.
Examples of brands using CPA methods
An example of utilising CPA in your marketing funnel could be the omnichannel cycling retailer, Sigma Sports. Sigma Sports partner with affiliates, publishers and content creators to promote specific products on their website. When a person clicks an affiliate link and purchases a product, Sigma Sports pay a commission to the person who drove that sale.
An example outside of standard eCommerce could be RISE Coffee Boxes. RISE work on a subscription model and therefore want to reward their affiliates when a consumer subscribes to their service. In subscription models, the affiliate earns a recurring commission for as long as the consumer remains subscribed to the service.
If you’d like to explore how Avelon automates the affiliate process, just click the link below:
Pros and cons of CPA / affiliate marketing
CPA / affiliate marketing has varied pros and cons – but all the disadvantages can be easily overcome with simple steps such as automating manual processes and have achievable KPIs in place.
Pros of affiliate marketing
- Only pay when an action/conversion is completed, reducing wasted spend
- Often more cost-efficient than PPC as there's no risk of upfront payments
- Encourages advertisers to optimise for conversions rather than just clicks
- Advertisers can align with publishers and content creators to promote the brand
The main pro of affiliate marketing is that advertisers don’t need to pay anything until a conversion has been recorded. This means there’s a huge reduction in risk compared to CPC/PPC.
Cons of affiliate marketing
- Can be hard to scale without mass adoption
- Requires some manual management of affiliates if you are working with content creators
- Often requires best price/commission for certain products
- You need to find the right affiliate platform, otherwise you'll just work with discount code websites
The cons of affiliate marketing are easily overcome with the right tactics. Creating a strategy that isn’t over ambitious and aligns with your goals is the key to eliminating the cons. For example, if your business is selling online and has many competitors selling the same product, then offering a low commission and focusing on full-price items isn’t going to get you far.
Would CPA / affiliate marketing work for my business?
CPA / affiliate marketing can work for any business, but it all depends on how your business records conversions, or what is considered a conversion. For example, if your business is a financial services provider who wants to get more leads, then your strategy will be completely different to an eCommerce focused retailer looking to sell products online.
When you’re thinking about starting your affiliate program, you need to consider the type of affiliate you need to promote your products, where your consumers are searching for products like yours and what would drive them to convert. The below list of questions are something to consider before getting started:
- Where are your target customers searching for products like yours?
- Who are the top voices of authority in your niche?
- How can you incentivise these voices to promote your products?
- How much commission can you offer these affiliates?
- Are you going to provide assets and offers to these affiliates to help them promote your products?
- How much time can put aside to contact these affiliates? How will you get in contact with them?
What does CPC/PPC mean? Examples of CPC/PPC
CPC simply means cost per click, whilst PPC means pay per click. People refer to them under different acronyms but they mean the exactly the same thing.
Cost per click is a form of marketing where you, the advertiser, pay an entity such as Google, META, Youtube or X (formerly Twitter), to advertise to the users on their platform. As the name suggests, you pay every time someone clicks or interacts with your advert.
This form of paid marketing has been refined massively over the past decade and these platforms now have incredibly intelligent tools to help you advertise to their users.
Examples of brands using CPC/PPC
CPC simply means cost per click, whilst PPC means pay per click. People refer to them under different acronyms but they mean the exactly the same thing.
Cost per click is a form of marketing where you, the advertiser, pay an entity such as Google, META, Youtube or X (formerly Twitter), to advertise to the users on their platform. As the name suggests, you pay every time someone clicks or interacts with your advert.
This form of paid marketing has been refined massively over the past decade and these platforms now have incredibly intelligent tools to help you advertise to their users.
Google Shopping & Google Adwords
Google Shopping and Google Adwords are prime examples of CPC/PPC. Both forms of paid advertising are based on a competitive ‘bid system’ that means you have to offer a higher CPC bid than competitors to get to the top of the page. It also runs on a ‘daily budget’ allowing Google to accelerate your spend until you run out of budget.
The amount you spend of CPC/PPC varies on what you’re actually advertising. The general rule of thumb is the more competitive the product sale, the more expensive it will be – like any supply and demand economy, really. For example, the Specialized Levo below has many retailers bidding for you to purchase the product from them AND it’s a high-ticket item, so the CPC/PPC bid to get to the top of the listing will be higher than you trying to sell a jersey at £50.00.
This form of paid advertising works wonders in some instances, if:
- You’re looking to scale traffic instantly with guaranteed results
- You have the best price for a product and want to meet buyers exactly where they are
In the below section, we’ll cover the full list of pros and cons of CPC/PPC advertising campaigns.
Pros and cons of CPC/PPC marketing
Utilising cost per click advertising can be great for your business, but there are some pros and cons to be aware of:
Pros of CPC/PPC marketing
- Easy to set up and scale depending on your budget
- Guaranteed traffic if you have the best price / budget available
One of the best points of CPC/PPC advertising is that you can almost guarantee scale if you have the budget available. For example, if there’s a high number of searches for a specific product, you’ll be able to capitalise on this by pushing more of your budget behind it. If you’ve got the best price, you’re going to make a sale.
Cons of CPC/PPC marketing
- Totally depends on your price and budget (also a pro but massively a con)
- Can get expensive if you're in a competitive industry
- Price of conversions has been rising by 27% YoY since 2019
- Not effective with high-ticket items
- Requires a lot of manual management
The cons of CPC/PPC advertising are pretty sparse, but the top issues are how much you need to spend and how competitive this form of marketing has become over the past few years. Our top tip? If you’re in a competitive industry or advertising against many others, use CPC/PPC as a string to your bow. Don’t put all your eggs in one basket as this channels ROI can change faster than the British weather.
Is affiliate marketing replacing Google Shopping?
Well, it depends on who you ask. If you ask Google, they’ll say no – but if you ask affiliate marketers, they’ll say yes. Luckily, we don’t work with anecdotal evidence and work purely on true data: so the answer is yes. Here’s why:
1. Google Ads are getting bloody expensive
Google Ads has become highly competitive. Increasing competition has resulted in heightened CPC rates, especially in industries like eCommerce, finance and SaaS. Because of this, brands are looking for more efficient alternatives and as affiliate marketing works on a performance basis (pay-for-results), it becomes way more attractive in terms of ROI for marketing managers.
2. Affiliate marketing promotes trust and credibility
Customers are losing trust in major technology companies like Google, META (Facebook) and X (formerly Twitter). Why would consumers trust these companies to display the best priced products when searching for them – when in reality they’re just displaying who pays them the most.
Affiliate marketing allows advertisers to partner with affiliates who are trusted and credible within their industry. An endorsement from a trustworthy affiliate can not only help build your brand reputation, but drive traffic, sales and healthy profits.
3. Affiliate marketing technology is getting smarter
As technology is advancing at a rapid rate, publishers are utilising their network to drive huge volumes of sales through what we call ‘price comparison widgets’. These widgets take product feeds and show the consumer where the product is in-stock and at the best price – all whilst being in amongst their reviews.
The below shows a price comparison widget on BikeRadar. You can view the review here.
This accelerates the buyer journey and moves the consumer from the top of the funnel (awareness) right through to bottom of funnel (conversion). As the user is presented the best option for them, it reduces the need to actually search around for the best price.
Not only is this great for the consumer, it’s also amazing for the advertiser as it reduces the need to invest budget upfront into Google Ads or META ads. It’s purely based on commission.
So, which is better for my business?
Answering this question depends on a whole host of factors and we don’t believe you should focus on just one channel. Both affiliate marketing and direct-paid spend have their pros and cons, but with the way the advertising industry is going and the need for proven return on investment without upfront spend – we believe that affiliate marketing will be the future of advertising, and your business.
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