With so many marketing models available, it can be hard to know which one to use. While a combined approach is always superior, many marketers choose to focus primarily on performance based payment systems such as cost per acquisition. The logic for this is simple: with CPA, you are only paying for when an affiliate or publisher generates a new sale for you. Therefore, your ad-spend will never be wasted and the partner is being fairly compensated for doing a good job. Naturally the unit price of CPA is significantly higher than in a cost per impression model; however, the customer acquisition cost for CPM is generally around the same as CPA and with the latter it is a guaranteed price. Why then would a marketer opt to focus on CPM?
The Potential Drawbacks of CPA
One of the issues with CPA is attribution. Marketers often design that campaigns around the data that they are able to gather from their campaigns. In the case of CPA, this will highlight the ad placement that generated the sale. However, this is an incomplete story. Not all marketing is entirely direct; therefore, the buyer may have been incrementally sold by a number of ad views before finally making a purchase. The problem with this arises when marketers are making decisions based on the resulting data. If the attribution is wrong or incomplete, the marketer may be inadvertently choosing to focus their campaign on less effective advertising.
Another possible issue with this is that with multiple CPA networks it is possible to double-count attributions. When multiple CPA networks are in use, each with their own data, it is possible for two or more to claim attribution for a view-through conversion (a view-through conversion is a type of attribution in which a user converts after seeing an ad but without actually clicking on the ad). This results when a user is served an ad by multiple networks and converts within the allowable window and as such both networks show that they had the last-touch. The more complicated a CPA campaign, the more likely you are to experience double counting.
The Advantages of CPM
The greatest advantage that CPM has over any performance based payment model is that it has nearly limitless potential. Each impression is extraordinarily cheap, hence why they are always grouped into 1,000s. Whereas in a CPA arrangement, the marketer pays the same amount for every acquisition, in a CPM campaign that customer acquisition cost can be reduced by increasing the conversion rate. The significance of this tends to be that marketers using CPM have the potential to improve their messaging and targeting over time, thus greatly increasing their sales within the same budget. However, advertisers paying on a CPA basis are hard limited by their budget.
Another benefit of CPM is that in a brand advertising strategy, the marketer is paying for what they are truly trying to accomplish: brand impressions. Therefore, it may be advantageous to purchase media units based on CPM in such a situation.
Of course CPA and CPM are both viable options and each has its own merits. Typically CPM should be chosen over CPA for high conversion rate campaigns and for brand advertising. Either way, it is best to experiment with both to determine the most cost effective way to acquiring new customers.