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Cost-Per-Action Done Right

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To read most of the articles on Google’s expanded test of CPA-based content ads, you would think it was the greatest invention since the wheel.  It could be great for certain advertisers, but only if they do it right.  As it turns out, that’s not so easy.

            The tricky thing for advertisers is not going to be figuring out how much they’re willing to pay for an action, it’s figuring out how many actions they’re getting, crediting them to the appropriate source, and raising their budget based on that credit.  In order to do this, you can’t think like a search advertiser.  You have to think like a media advertiser. 

            A huge part of the challenge to Google’s CPA ads, was highlighted by my colleague Kevin Lee in his recent ClickZ column.  Without too much repetition, the challenge for the CPA advertiser is going to be competing against all the other ads, including site-targeted CPM and CPC ads, and keyword-targeted CPC ads.   

            The keyword-targeted CPC ads, many of which may benefit from a high Quality Score (which you can only get by advertising on Google.com) are the favorites to receive the highest impression frequency at the lowest cost.  Without a Quality Score on Google.com, and with the low click-through rate and conversion rates that are typical of display ads, the CPA advertiser is the underdog in this contest.   

Because he’s the underdog, he’ll have to pay very high bid prices for the publisher to even serve impressions, let alone get the clicks and ultimately conversions that will compensate the publisher.  However, as those of us in the media world know, a display ad’s click-based conversions typically make up a small percentage of the total conversions that the ad drives.  The rest are what we call view-based conversions.   

The premise behind the view-based conversion is fairly simple, a customer sees a display ad and doesn’t immediately click, but returns to the advertiser’s site later and converts.  Advertisers can track this by dropping a cookie onto every computer that sees their ad, and setting pixels on their Thank You pages to record each conversion and credit it back to the referring viewed ad.   

Crediting view-based conversions appropriately can be a tricky business, especially if you’re running campaigns on a lot of different online networks and offline media platforms.  For instance, a customer may have seen your Google CPA ad, and then another display ad through a different online network, and it was the latter ad that drove the conversion, not the former.  To credit the conversion to the appropriate view, you’ll need a system that de-dupes your cookies and applies the credit to the view that occurred closest to the conversion. 

However, this begs the question, what if my viewer saw two ads, but it was the first ad he saw that really drove the conversion, not the second?  This will require you to review your analytics carefully.  If you see an ad that has a high number of views before a conversion, but is not always credited for the views, chances are that ad is performing well for you, and you may want to increase your CPA, or CPM if it’s on a different network. 

Advertisers can also run into crediting problems if they’re running campaigns on other media, such as TV, print, or outdoor.  A viewer may see your online ad, then see your TV commercial, and then convert on your website.  Your system may automatically credit that conversion to the online ad, but the TV ad may have been the primary conversion-driver.   

To adjust for this, you can set a time limit for crediting view-based conversions.  You’ll have to determine an appropriate time limit based on the extent of your other media campaigns.  For instance, if a viewer converts three hours later, you’re probably safe crediting that conversion to the viewed online ad.  On the other hand, if he converts three days later, maybe it’s because he saw your message on a different medium.  Advertisers will need to decide this on a case by case basis. 

Advertisers who have a system like this will have an advantage in the bidding war for impressions.  There will be a huge gulf between what they pay their AdSense publisher for an action, and what they’re actually paying per action.  If you can exploit that difference and dynamically raise your CPA based on a holistic performance metric that includes view-based conversions, you stand a good chance in the competition against the CPC ads.

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Cost-Per-Action Done Right
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