CPA vs CPC - Who Wins Who Loses And Why.

[Master Mind]

Greetings All,

With the endemic fraud affecting the affiliate CPA marketing world, the only real answer is to do CPC.

CPA was doomed from day one, not because you couldn't make any money at it but because the inherent structure of it created a paradise for cheaters. it basically comes down to whoever has the most traffic for the least cost wins.

The whole problem centers around who pays for the traffic to any site. In the CPA model it's the affiliate and the merchant. In the CPC model it's just the merchant.

In CPA the best cheaters win. Merchants can cheat at will, affiliates can steal other affiliates traffic etc. The guy who can get the most traffic for the least cost can make the most money.

Amazon is the best example. With close to 1 million affiliates, all Amazon needs is to have each affiliate send them just 10 visitor per day on average. If they do get these results, they have 10 million potential customers hit their online store every day. If they sell 1% of those visitors an average of $20 worth of product they take in $2 million per day. At their 5% commission rate they would be paying affiliates $100k/day.

From the affiliate perspective, it these results were the case, each affiliate could expect to make a $.01 per click thru per day from Amazon. Amazon figures to make $.19 cents per click thru per day.

If the sales to visitor ratio goes to 2%, then Amazon makes $.38/click and affiliates $.02 per click.

Now if Amazon can play the tricks for clicks game and a few affiliates can cheat the system, then the average affiliates return per click will go down and the average click return for Amazaon and the trickster affiliates will go up.

Eventually however the average affiliates get a clue and stop sending Amazon any traffic. For the cheaters to maintain their ratios they have to steal from other cheaters. The end result, is neither Amazon nor the cheaters survive since in the end there is only the cheater who has all the traffic and Amazon left to play the game...it's called the tragedy of the commons.

In the CPA model, the risk is always on the affiliates shoulders, the ease of entry to the 'commons' is close to free, the traffic potential is always finite, so you have competition for traffic.

In the end everyone loses.

The CPC model prevents all the problems associated with CPA.

If we use the same example and Amazon paid affiliates $.05/click, then they would pay out $500k and each affiliate would make $.50 per day on average, Amazon would make $.15 cents per click. At a 2% sales converson rate, Amazon would make $.35/click. At a 3% conversion rate, Amazon would make $.55/click thru.

Up to a 3% conversions rate the CPA is a bit bettr return for Amazon. At 4% they are better off doing CPC that CPA.

However, for the AVERAGE affiliate CPC is always better than CPA. The average affiliate is on the same playing field as the super affiliate and the cheaters in the CPA model.

CPC fraud is relatively easy to police compared to CPA fraud.

And any merchant can mitigate his CPC costs by giving affiliates the right to buy at his products at a discount up to the amount he has earned in the previous quarter.

In this CPC model, there are no losers except the people who can't close sales at a rate of at least 1%.

Now all of this is nothing new. Print media tried CPA when it was new. Radio tried CPA when it was new. So did TV.

The reason they all very rarely even use it now, is they found that in the long run it doesn't work.

Here's a simple example: Modern Maturity has a subscription base of 10 million. it costs $125,000 for a full page ad. Who knows what the returns will be for that ad?
Who know exactly how many of the 10 million will even see the ad?

But suppose the same merchant spent $125,000 for traffic to a web page at 5 cents per click, he'd get 2.5 million people to see the ad worst case.

And he'd still be ahead of the game, because there is no way on the earth you can deliver anything that can be guaranteed to be individually viewed with a purchase right now option to 2.5 million people for less $125,000.

Would the merchant be guaranteed a profit. No. But he's not guaranteed a profit from the print ad either.

There is no CPA program in which 50% of the affiliates get a check every month.

So people with a CPA program will lose a minimum of half their affiliates every month. Recruiting them eventually cost more than they are worth in FREE traffic.

Any comments.

[Linda Buquet]

Frederick,

Interesting viewpoints. I'd like to hear some feeback from others about this. Sounds like the makings of a good debate.

[Cedric]

Just ran some stats for CJ and LS... until all of my advertisers convert to "double digit" CPC (i.e., MINIMUM (and I do mean MINIMUM) of .10 per click), I'm sticking with CPA.

Otherwise, I'm going to loose a boatload of money.

[Master Mind]

Not whether any merchant converts at any price, but what's it cost to get the traffic from which the conversions come from.

If a merchants EPC is $10.00 but it costs you $10.01 for the traffic to get the $10, you have a losing proposition.

It's irrelevant what your merchant's EPC is. You need to know what your EPC is.

What really matters is sales per visitor not EPC. What good is it if a merchant has a $100 EPC but only made 1 sale and the one affiliate made $10,000 and 9,999 made Zip.

Yet NO ONE is telling you how many sales they make per 100 in traffic.

For example, if netQuote paid one affiliate
$10,000 and the reward was $5 for the lead,
the affiliate generated made 2,000 leads.

What makes or breaks the deal is how many people did the affiliate have to send to netQuote to generate 2,000 leads and what did it cost him to get the traffic.

If it took 2 million people to get the 2,000 leads, then the program sucks since it would mean a 1 in 1,000 sales conversion ratio. On the other hand if it only took 20,000 visitors it would be a killer deal.

The price you get for the deal makes a big difference. A $.10 lead that converts at 10% is bad deal, since traffic almost always costs more than 1 cent. A 50% conversion rate is still only 5 cents per click.

My point is that IT'S ALL PPC. You PPC to get traffic and you get paid per click to send it.

I would be guaranteed to get paid than to have to depend on the honesty of CJ or Linkshare - I'm already upside down $100k
in trusting the trusted 3rd party.

[Cedric]

>> I'm already upside down $100k in trusting the trusted 3rd party.<<

Well... at least I can understand why you think CPA doesn't work.

But beyond that, I'm not sure what it is you want from this thread -- what are you looking for in responses?

[Master Mind]

I don't think CPA dosen't work. It works just fine if the merchants and networks are honest but they are not.

I used to sell a health related product online to women...I buy it by the case for X amount, sell it online for x+$9 with FREE Priority Mail Shipping.

I averaged about 100 sales per month. it took about 30 minutes per day worst case to deal with it. I made a $500 or so profit per month from a simple 1 page website and a credit card processor. $33/hr. Not great but it paid the new car payment and auto insurance.

Well, the company decides to create a web page for affiliates and handle all the stuff in house...same product, same traffic, same info on the page...sales drop to 10 sales per month on good months.

How come? Bad shopping cart? Sales not reported? Who really knows.

But it really came down to who controlled the money. If the customer paid me, then I controlled the money and the customer. If the customer paid the company, then they controlled the money and it would take some deep pockets to find out all the details thru legal action.

Now I don't necessarily believe that the money thing was the real problem. I think a huge part of it is WHOSE CUSTOMER is it.

CPA happens everyday in the real world of commission sales and agency deals. The big difference is the affiliate (sales rep) knows who the customers are.

In all the sales I have made for all the network merchants, I have no clue who the customers were.

When it comes to money, you can't trust anyone 100%, least of all big merchants.

Here's a deal that happens all the time. Merchant a has a $50 check limit. Say they have 1,100 affiliates. 100 affiliates make a check and 1,000 are owed an average of $40. The company closes their program on the network and keeps the $40k because the affiliates didn't make the minimum check level. They email the 100 dudes who got a check to go join their Indie program or program on a new network.

No biggie - only 1,000 affiliates got screwed but only technically. The company saves $40k and KEEPS ALL THE CUSTOMERS.
And if they are real slimes, like Wal-Mart,
they reverse a few sales to get all 100 under the $50 limit, and save the whole enchilada and say if you don't like it sue us or blame it on the network.

But the problem is most affiliates just take their medicine, instead of suing them.
If all 1,100 sued them in small claims court they would be out a ton more than they ripped off affiliates for, but why sue someone like Wal-Mart for $50 when it will cost you twice that.

Even with CPC the above senario is a problem, but it's easier to prove fraud in small claims court for CPC than CPA.

The real problem is the networks let the merchants get away with it because they are paying them a monthly fee.

CJ has 2,000 merchants plus. They used to pay $300 per month - do the math.

You can make 100 times more money doing Dutch auctions on eBay than you can dealing with any merchant on any network unless you are a Google or a mega traffic site.

But then you have to do actual work, like collect the money, buy the product, ship it out.

What I am pointing out is that there is NO FREE LUNCH in CPA.

With CPC, it's a different deal. You want 2 million people to see your financial ad run it for a week in the Wall Street Journal. But they aren't going to do any per anything. Here's the price, pay it or go somewhere else.

Why should anyone who has a web page do anything different than the Wall Street Journal?

Only difference is that your 'publication' might have more or less viewers per day and may or may not be similarly targetted. Also, the Wall Street Journal has people who sell the ads. There is NO FREE LUNCH here either.

Yet even with the WSJ, you can get a per impression number by dividing the cost of the ad by the number of subscribers.

It's all the same thing. The real problem is that everyone thinks the internet is FREE.

CPC forces the merchants to pay, CPA forces the affiliates to pay.

To level the playing field, the ideal is to for merchants to pay some CPC and some CPA percentage.

But it's hard to do this on a network, because the money that should pay the PPC fees goes to the network.

Merchants used to pay $2,000 per month to be on Linkshare...before they even made a sale and got any traffic.

That amounts to 200,000 in traffic at 1 cent. If they could get 1,000 affiliates and average 20 visitors per day per affiliate the cost per visitor was 1/3 a cent per month.

And if you could screw all 1,000 affiliates, you could clean up and they did for awhile.

The problem was eventually the pool of FREE LUNCH affiliates stopped growing and they couldn't replace the ones they were losing.

The networks provided a buffer. The merchants could blame all the problems on the networks.

Another problem with CPA is that the more product choices a person has to make the lower the sales rate.

The best returns come from individual product sales to targetted people interested in that type of product where the product choice is 4 or less.

If this were not the case, eBay wouldn't be cleaning everyones clock. Yet merchants as a rule do not create one professionally done sales page per product or group of 4 products. They tend to shotgun everything.

The very best way for a merchant to make big time sales is to make a landing page for a storewide discount coupon with 3 products people can buy with the coupon right now and a link to their home page.

Then have all the affiliates send everyone to that landing page and pay 1 cent per click and 5% to 10% of the sales.

As an affiliate, if I send 100 people to that coupon, I make $1 and if I sell $100 worth of goods I make $6 or 6 cents per click thru.

If I send 1,000 and sell $3,000 in stuff, I make $160 or $.16 per click. Worst case is I make $10 and any sale is gravy. If you get any FREE SE taffic, it's a win-win deal for both parties.

If I send 100k, I make $1,000 worst case.

One thing the hybrid deal does is force the merchants to actually make some sales to cover their cost of the program.

If the merchant is a national brick and motar place, they should pay the affiliate 3 t 5 cents per click and have the traffic sent to a landing page which has a storewide screen printable coupon which can be used for say 30 days in the store or used right now or for a fixed number of days online.

For $30k they 600,000 coupon viewers at 5 cents. If they get 10% screen printed, that's 60k. If 10% are actually used, it takes only $5 in sales to cover the cost.

If overall, they get 10% used and average $5 per sale, they take in $300k for $30k.

All the affiliates are happy campers - they make a check, the merchant should get a 100% net return or thereabouts for the cost of the traffic.

On Wall Street people kill for a 10% net return per year.

With online marketing any merchant with half a brain can make that every month easy. Problem is you have to have a brain to even have half of one.

Until someone gets a clue, I'll just fool around with CPA and CPC, and make the real money setting up Dutch auctions for people who want to make real money.

[Cedric]

The most that I can gather from your posts is that you think CPC is better than CPA.

I think anyone reading this thread understands that.

You seem to be saying that "small players" can NOT make money doing CPA -- good good, the more people who believe you, the fewer competitors.

Beyond that, I have no clue what it is you want from your posts... to educate the masses to your way of thinking? To garner support for some CPC network? To get rid of your competitors in CPA?

IOW, what's your point?

[Master Mind]

You gotta do both...but until the fraud in CPA is addressed, do more CPC.

Unless of course you know when you made a sale and for how much in 100% of the cases.

[Cedric]

The only CPC I'm doing is AdSense, beyond that, I've never found CPC to be a strong profit model... and I did CPC/CPM ONLY for three years prior to making the CPA leap.

[ancientmariner]

I've been doing this since 1999. I've almost always had about 500,000 page views a month. Back then VC was paying $.15 to .25, plus a couple at CJ paid .05-.1. I made about $1200/month. But then three things happened:

The "clients" at VC started going to branding banners. Nothing to solicit a click. So my CTR went from 1+% down to .2% inside of few months. Soon afterward, the pay outs dropped down to $.12-.17 and then later to .07-.12.... and falling.

GoClick went from .... .12 to .1 to... finally they were paying me ZERO and I didn't even know it for 3 months.

I had a merchant at CJ that was paying .1 and another paying .05, but lots of clicks.

All that together made about $1200/month at the beginning, but only a few hundred at the end.

Then CJ started with CPA ... first few months I was clobbered. Then I got to $400. About the same as the end of cpc, but still not close to the "good old days of cpc." Finally a year later I got back to $1000. Averaged about $2K/month for the next year or so. Then I got the hang of this cpa stuff and did $4K for a few months this year before Google went nuts. Dropped back down to $1000 at Christmas! But I seem to making a come back in Jan and now Feb.

Why do I tell all this?

Because with cpc, you still have cheaters. It's just different cheaters. Branding banners instead of action banners kill CTR (on purpose, so I see that as cheating.) Rates fall like a rock when that happens because the network don't want to lose their share. So they take it out on us by reducing the pay rate, instead of admonishing the merchants, which is what they should do.

Cpa has cheaters too. Lots. I can't even tell you how many I have caught with test purchases. But again, the networks don't discipline the merchant because they want that monthly check.

So in both you have cheaters. In both, the network is weak on policing. With cpc, it's obvious. With cpa you have to work a little to find them.

I'd also like to add the mindset for each system is very different from the other. cpc is a lot easier for me. cpa takes a lot more time, however, I don't see $4K/month coming from cpc, but only cpa.

So I think in the end they are about the same. (At least in the $/hour catagory.) One is fast and easy with a moderate gain, the other requires more time and effort, but it pays off bigger.

Right now, I'm with cpa, but I might get tired of the grind and go back to cpc.

As for "small sites" I'm not sure what you call small, but I don't see how a site with less then 100,000 visitors/month can make much money with cpc. Even in the best of times with cpc, and $.25/click and 1% ctr, that's only $250/month. Are their any cpc paying more than $.25/click with ctr over 1%? If so, I'd like to know about them. Otherwise, I know I can make more than that with a decent cpa program. (But of course, I have to find that decent program, which takes time and effort.)


FWIW.

[cosmicperl]

CPA or PayPerLead/Sale is the future, and is the only means to develop a close and mutually profitable relationssip between you and your affiliates.

CPC has its place, but CPA will always be the best solution. You talk of cheaters tricking the system and stealing commissions, but this is rarely the case when a proper affiliate system is in place. Being a programmer myself, and having designed and coded an entire affiliate system from scratch over the last 5 years gives me some experience in these things.

Fake clicks on CPC are far to common. We all know what happens when you look at overture for your searfh terms. You see yourself pushed down by someone doing an excessive $3 per click. So you click on his link. And you also know full well that every time an affiliate visits their site they will click on their link. You can easily have people blind linking to you. reducing the quality of the clicks.

With affiliate marketing CPC you can have gateway pages and monitoring systems to give better quality clicks and reduce the competitor/scammer clicks. You can also check the affiliates accounts before sending payment to pickup fraudulent activity looking at click to slaes ratios. Of course this is much worse with Google, Overture and alike as you have no way of protecting yourself, and you'll pay top whack each time someone feels like clicking.

But good CPA works better all round, but only when it is done properly. That's why you have people making money on google with findwhat with CPC linking to pay per sale affiliate programs. I make money this way on GoTo and Amazon before the prices got to high.

The problem with CPA at the moment is the affiliate networks. They are taking a huge chunk out off the affiliate pye, and making problems tracking the fraudulent affiliate sales. Taking a 30% cut means the affiliate is 30% worse off on the deal. That $1 affiliate commission turns into 70c, $1000 into $700 and that's to much when you are trying to build the most profitable relationship between you and your affiliate.

I've provided affiliate solutions when all affiliate orders are cross checked to ensure they are authentic, cheater reports are run before each pay period, and the affiliates are treated as individuals. Affiliates can be given individual comissions such as 30% when everyone else is on 20%. And bonuses can be awarded to affiliates who earn over a set amount in a pay period, such as 5% over $500 10% over $1000 and so on. And the best thing is that there is no network to take your affiliates away or take a huge 30% cut out of their earnings.

Now here is the next big thing.
OFFLINE AFFILIATE ADVERTISING.

I'll talk about this a bit more in a new post.


By the way if you want to play with affiliate marketing number you can do so with a special calculator on my site:-
http://www.allaffiliatepro.com/whyneedone.html
Or a more detailed one at:-
http://www.allaffiliatepro.com/revenuecalculator.html

If you have an affiliate marketing idea you want to set into motion. And want to see how I can create the affiliate program of your dreams for you. Then contact me
info @ allaffiliatepro.com (remove spaces)

[Master Mind]

Cosmic perl is correct of course...CPA would be better if there were no cheaters, the sales per 100 click rate was good and you never got screwed by the merchant.

But no matter what you call it, it's all CPC.

Let's say you pay Overture 5 cents per click and get 100 targetted visitors to a merchant. You make 2 sales and earn $10.

You paid a nickel per click and earned a dime per click. It's irrelevant, as to whether it was CPC or CPA.

The difference is CPC is a fixed return and CPA is a variable return. Obviously, if the variable return is greater than the fixed return it's a better deal.

Suppose you pay $20/day for all your web costs inclucding traffic - that's $600/month. You earn $700 in that month you are a happy camper, you earn $500 a not so happy camper.

Suppose the total traffic was 30,000 unique visitors for the above. You paid 2 cents per visitor. As the happy camper you earned a tad less than 3 cents visitor.
As the unhappy camper you earned a tad less than 2 cents per visitor.

If you get a FREE top 5 listing on a highly searched term in Google and get 100 visitors per day, if you make 1 sale you make more per click than you paid and make a profit. But if you had to pay anything for the traffic, you would need to make more than it costs to make a profit.

Ideally, if your costs are $600/month you want a fixed return of $600 so you cover your costs. Once your costs are covered, the variable return is the way to go.

[TheWebDoctor(tm)]

This is probably one of the thickest pile I've ever come across. I actually got bored with all the redundent arguments.

Master Mind, I think you nailed the problem on the head. Many organizations don't show the clients who purhcased with the amount of sales and percentages earned. That's a problem with most programs - I hated it so much that I went the way you suggest.

CPC/CPM is plain garbage.

CPM is based upon the number of impressions or the number of inclusions. This method is only good for branding purposes and makes this advertising platform a viable option for organizations that have deep pockets.

CPC is based upon an arbitrary value placed on the category or type of business choosing to use the service. This method doesn't not guarantee sales. It only guarantees that an expense will have to be paid. Again, small businesses can't compete well in this model. PPC is based upon this model, but requires bidding where deeper pocketed organizations can squash the small guy.

Amazon has the worst affiliate program. You get your affiliate id placed in their cookie for a maximum of 24 hours or until a visitor comes from another affiliate's site. This is the most challenging situation for affiliates. Amazon wins, but not necessarily the affiliate. So, if you're complaining about Amazon, I will agree with you.

If you're simply complaining because you're confused with all the junk from the affiliate vendor sites, I can agree.

Remember, it wasn't all the press Amazon received that made it a large site. Amazon's power came from the affiliate program. With over 8,000,000 links pointing to Amazon, you tell me how a small business can compete against that link popularity model. I guess we can fairly say that link popularity in the SE models is just plain junk.

When you find an independent site offering that's what you should jump on. Not only are you helping a small business, you're helping yourself. Small businesses typically won't cheat you. You helped them make money and they realize that if you don't help them they won't make the sales. It's a win-win situation.

[orfeo]

I finally finished reading this huge thread. I was educating.

In general I will agree with Master Media. It all ends up to value per visitor.

No matter what model you choose to use in paying (CPM,CPA,CPC) finally you end up saying "How much did I pay for each lead/sale". When you do that you can figure a price to pay for each click and pay that instead of pay per lead or sale.

I run an affiliate program for my site where I pay 0,06 per subscription to the site newsletter. I don't have many affiliates because most people think that $0,06 is extremely low. But most affiliates that send legitimate traffic make around $0,025/click. If I payed $0,02 CPC I would make the program very attractive because the banners are clickable as hell. Reason I don't do that is because I have accepted many low quality sites that I don't want to pay CPC. When I get rid off all of them I will probably switch.

What I want to say is that the merchant should do all the job and calculate how much he can pay per visitor. But then he must monitor the sites where his add will be displayed. Also the merchants using CPA make great profit from sites that send 1000 hits, never get a sale and quit. I believe the CPA model is a merchant-friendly and I don't like it much.

Cazinos affiliate managers send emails that say "You can have a sale for every 500 clicks, and that means $0,2 effective CPC as we are paying $100 per sale.". I always reply "OK then, if you are that sure, pay me 0,15 CPC and I begin showing your adds in 10 seconds.". They all dissapear. Ask yourselfs why.