Performance-Based Marketing: Should You Use CPA or CPL?

Why do you run marketing campaigns? To make sales? Spread awareness? To capture leads?

Whatever your reason is, you’re not just doing it for fun. Instead, you want to get something out of it.

Unfortunately, what you want isn’t always what you get. Sometimes you invest lots of time and money in a marketing campaign and get nothing.

But what if you paid only for successful campaigns? Wouldn’t it be great if you only paid when your campaign delivered the results for which you hoped?

That’s where performance-based marketing comes in.

What is Performance-Based Marketing?

Performance-based marketing is a type of marketing that is entirely results based. You pay for the results you receive from a ‌campaign and nothing else. 

Types of performance-based marketing in pay-per-click advertising. This type of marketing relies on consumers to make quick decisions about installing an app, clicking on a page, or purchasing a product.

It’s different from standard marketing services, where you pay a flat fee upfront. Whether you pay monthly or annually, your fee for these standard services doesn’t change if the campaign doesn’t provide what you’re looking for. You pay for the good and the bad.

This isn’t the case for performance marketing. Instead, you pick a measurable goal that defines your pricing. It could be something like:

• Clicks
• Views
• Sales
• App downloads
• Impressions

Whatever the metric is, what you pay for is what you get.

Examples of Performance-Based Marketing

The most famous example of performance-based marketing is Google Ads. Throughout your life, you’ve probably seen hundreds of these ads:

These are cost-per-click ads (CPC). This is performance-based marketing because advertisers only pay for clicks and nothing else.

Another example of performance-based marketing is LinkedIn ads. LinkedIn ad pricing is relative to the objective that you choose.

For example, an advertiser might choose website visits as a performance metric. In this case, they get charged only when someone clicks on their website.

What is CPA in Performance-Based Marketing?

In the world of marketing, CPA stands for “cost per action” or “cost per acquisition”. It is a type of conversion rate marketing. It refers to the amount you’re spending for each conversion that you capture.

For example, if you say that your end goal is to get consumers to download your app, when figuring out your CPA, you will only count consumers who downloaded the app. This will tell you how much it cost for you to get each conversion.

Just a warning: Don’t confuse CPA with cost per click (CPC). CPC is a type of CPA.

“Cost per action” and “cost per acquisition” are often used interchangeably. 

This common confusion is an error. Cost per acquisition measures how much it costs to get one paying customer.  It does not measure how much you’ll actually pay the marketing company or platform.

Why Should You Use Cost Per Action?

You should use CPA because it makes it easy to physically see how much each campaign is costing you. Because of its flexibility, it is great for businesses of all sizes and industries. That’s because CPA campaigns are so flexible.

For example, small businesses might choose cheaper click-based ads. But larger companies may pay for expensive download-based ads.

It’s best to do some research before jumping in though. CPA marketing only works if you know how much an action is worth to your business. Without a baseline, you’re stuck with guessing. And if you’re guessing, costs will spiral out of control.

How to Calculate CPA

To calculate your CPA, you want to divide your total actions by the amount spent on the ad. Here is the equation to use:

CPA = Amount Spent / Total Actions

“Actions” is whatever you define it as.  It could be downloads, clicks, email registrations, website visits, or any other conversion goal.

How to Optimize for Cost Per Action

To use CPA effectively, you must optimize it as much as possible. Otherwise, you won’t make any money with it.

Here are the best ways to optimize your CPA:

1. Improve Your Landing Page

A good landing page is one of your first chances to make a good impression. If you’re using website visits as your action, a good landing page is a must. Within seconds of finding your site, visitors will form their impression.

The goal is to keep people interested. If you have a bad landing page that doesn’t resonate with your audience, they will leave. That means lots of money lost over time.

A/B testing is the best way to optimize your landing pages. Create two versions of your page and see which performs better.

From there, keep testing and tweaking until you get your page to a place where your audience enjoys it. Once you have a landing page that resonates with your audience, you’ll start to see returning dividends on your ad investment.

2. Fine-Tune Targeted Demographics

One of the key factors of effective advertising is targeting the right audience. Advertising to the wrong people will only burn your money.

To find the right audience, you need to create a buyer persona.

A buyer persona is your ideal customer profile. It comes from careful market research into who needs your product or services most.

Your persona gives you a baseline target demographic. With testing, you can refine it further.

The more you work on your buyer persona, the more you’ll understand what your target audience is looking for. Once you know what they’re looking for, you can create landing pages and offers that speak to them.

3. Write Effective Ad Copy

Copy is the defining aspect of most ads’ success but there’s more to just putting words on the page. High-converting copy is never an accident.

When writing ad text copy, you need to think about the features and benefits of your product. People don’t usually just wake up and decide to buy things. It often takes a little convincing and that’s your job. You have to properly explain why they need your product right now.

Once your copy is refined, it’s time to bring it home with a compelling call to action (CTA). High-converting CTAs will be what makes your CPA profitable. Make their next step clear with a concise and enticing CTA.

What is CPL in Performance-Based Marketing?

Cost per lead (CPL) is a method of performance-based marketing. CPL marketing is paying for each new lead generated.

Companies that offer subscriptions or high-price products often use CPL tactics. One of the best-known CPL marketing strategies is affiliate marketing.

For instance, web hosting companies pay affiliates large sums for each subscription referred. Hosting companies can afford it because they make lots of money from subscriptions.

For example, say a web host tells an affiliate that they will pay them $50 for each lead the affiliate produces. If they’re paying this much, they only want really good leads.

To make sure this happens, they will negotiate a deal that says leads are required to purchase a two-month subscription in order for the affiliate to get paid.

This ensures they are only paying for long-term customers and gives them an established CPL that they can factor into their budget.

When Should You Use CPL Marketing?

In order to be successful at digital marketing, you have to know how much it costs to get your leads. CPL marketing is the best way to figure out this information.

However, CPL-based marketing tactics are a different story.

CPL as an acronym in marketing works best for products with long-term sale models. If you’re planning on making money from leads for a long period of time, CPL marketing is better than CPA.

Many SaaS companies prefer CPL because they make money from customers over time. But a store selling less expensive products would probably want to steer away from CPL for cost-related reasons.

How to Calculate Cost Per Lead

To calculate CPL, divide your marketing costs by the number of new leads. Here is the formula to use:

Cost Per Lead (CPL) = Total Marketing Costs / Total New Leads

More complex calculations will also factor in time spent and third-party costs (such as marketing tools).

The Two Types of CPL Ads

There are two different types of CPL ads: single opt-in, or SOI, and double opt-in, or DOI. Let’s take a look at the differences between these two.

Single Opt-In or SOI Ads – Single opt-in, or SOI, ads are a very common way to get conversions. Once a consumer clicks on your ad, they opt-in for more information by leaving their email address or some other information, such as their ages, location, or interests, that will help you improve your marketing efforts. Once they provide their email address, that’s it! They’ve opted into your offer. Because people only have to do one thing to opt-in, many companies use single opt-in ads with success.

Double Opt-In or DOI Ads – Double opt-in, or DOI, ads take it one step further by requiring the consumer to take two actions. Because of their longer funnels, they aren’t always as successful as SOI ads. A DOI ad is often set up like this: the consumer fills in the data (often an email address) and then you send an email confirmation for the consumer. They only opt into your offer when they hit the confirmation button in your email. 

Since there are multiple steps for the consumer, there is often a lower conversion rate but a higher testing budget and more work on the side of the advertiser. However, DOI ads usually produce higher-quality leads. Since the consumer has to do some work to opt into the offer, they are usually more likely to purchase or sign up for whatever you’re selling.

How to Optimize Cost Per Lead

Dumping money into CPL marketing doesn’t guarantee results. Instead, you’ll need to create a strategy and craft some really great ads that your audience will love.

Here are a few ways to do so:

1. Target Based on Behavior

Many advertising mediums allow you to target based on behavior. This is a great way to ensure only relevant people see your product.

For example, if you’re selling audio mastering services, what is the point of advertising to someone looking for guinea pig supplies? With the help of targeting, you can specifically target people who frequently search for audio mastering or related keywords. This will improve the chances of them clicking on your ad and give you a higher ROI and conversion rate. 

You can also retarget people who’ve visited your website. But instead of targeting everyone who visits your website, you can target based on the pages they visit.

For instance:

• If they browsed a particular service, you could retarget based on that service
• If they left items in their cart, you could entice them to complete the sale

Keep in mind that not all pages equal interest, though. Someone who checked out one blog post does not have the same intent to purchase as someone who filled up an abandoned cart.

2. Optimize Your Website for Conversions

With CPL marketing, your business is only as good as its website.

Make sure it:

• Indicates social proof (reviews, high-profile features, etc.)
• Loads remarkably fast
• Is mobile-friendly
• Explains why your product or service will help the visitor
• Answers frequently asked questions
• Makes it easy to speak to a sales representative

Conversion-optimized websites will create low CPLs. The easier you make it to complete your funnel, the more people will do it. This starts with improving your website and optimizing it for sales. This is why improving your site is one of the best investments you can make.

3. Reduce Poor Quality Leads

Not all leads are equal. While a high number of leads might look good on a spreadsheet, if they aren’t purchasing, they aren’t profitable. 

If your CPL campaign keeps getting calls about a product you don’t offer, something is wrong. These poor-quality leads will only inflate your CPL – not make sales.

To avoid getting inundated with bad leads, optimize your CPL campaign to filter them out. Here are a few strategies to try: 

• Add pricing to your website. This may result in fewer calls, but those calls will be from people who are ready and willing to spend the money on your services. 
• Add negative keywords to your keyword bids.
• Add conversion tags to your website. These tags help you tweak your site to serve visitors better.

It may take a little bit of work to weed out the bad leads but it’s work that’s worth it.

CPA vs. CPL: Which is Better for Performance-Based Marketing?

Now let’s compare CPA and CPL directly. For the sake of this exercise, our action will be sales.

Short-Term vs. Long Term

CPA marketing focuses on short-term results. The sale occurs immediately with a CPA model, and the advertiser gets paid right away.

The short-term CPA model works best on products with smaller margins.

CPL models may take months before the conversion happens and the advertiser gets paid. But when it does, it will be highly profitable for the company.

So Which is Best?

Ultimately, there is no one-size-fits-all answer to this question. Your business must instead compare the pros and cons of both models.

CPA is best for high-volume, low-margin products, and services. CPL is best for high-margin products with long-term sales cycles.

However, you can mix the two to an extent. By combining the two, you can make short-term sales with the potential for longer-term relationships.

Wrapping Up CPA vs. CPL

The CPA model is mostly one-and-done. CPA models often mean you won’t see a customer again after the sale.

On the other hand, CPL extracts long-term value. By building relationships with customers, you’ll create long-term profitability.

It will come down to your situation to decide which is best.

Need help? Get in touch with our PPC team to determine which model is right for your business. 

FAQs About Performance-Based Marketing

1. What is CPA Marketing?

CPL marketing, or cost-per-lead marketing, is a method where the advertiser pays for each new lead generated. There are two types of CPL marketing: single opt-in, or SOI, and double opt-in, or DOI. 

2. What is CPL Marketing?

CPL marketing, or cost-per-acquisition marketing, is an advertising technique where you evaluate the cost per acquisition by looking at how many people actually followed through your sales funnel.

3. Which is better for my business: CPA or CPL Marketing?

It depends on your goals. CPA marketing tends to get higher results in a faster time frame but CPL tends to make more money over a longer period of time. If you have the time and are selling a more profitable product, you might be okay with the lead time on CPL marketing. If you have a less profitable product, you might want to try CPA marketing first. Regardless of which type of marketing you decide to take on, be sure to do your research and frequently evaluate your progress.