MENUMENU
  • Services
    • Services
      • Search Engine Optimization
      • International Search Marketing
      • Local Search Marketing
      • Pay Per Click Advertising
      • Social Media Marketing
      • Email Marketing
      • Conversion Rate Optimization
      • Public Relations
      • Website Design & Development
      • Reporting & Analytics
      • Amazon Marketing Services
      • Digital Marketing Strategy
      • Franchise Marketing
  • Case Studies
  • About Us
    • About Ignite Visibility
      • Our Story
      • Clients
      • Our Values
      • Diversity & Inclusion
      • Our Team
      • UCSD Extension Courses
      • Careers
  • Thought Leadership
      • Our Blog
      • Podcast
      • SEO: The Movie
      • Social Media Marketing: The Movie
      • Book: The Forecaster Method
      • Attend Our Next Digital Marketing Event
  • Contact
  • 619.752.1955
Home / PPC / Performance Based Marketing: What Are CPA and CPL?

Performance Based Marketing: What Are CPA and CPL?

July 5, 2022 By John E Lincoln

Performance Based Marketing: What Are CPA and 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 marketing is results-based. You pay for the results you receive from a ‌campaign and nothing else.

You might pay a flat monthly or annual fee for standard marketing services. Your results might be good or bad. Either way, you’ll need to pay up.

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:

Example of Performance Based Maarketing CPC Ads

Example of Performance-Based Marketing CPC 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.

Example of Performance Based Marketing LinkedIn Ads

Example of Performance-Based Marketing LinkedIn Ads

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 Marketing?

First, what does CPA stand for in marketing? CPA stands for “cost per action.”

CPA marketing pays only for pre-defined actions on ads. For example, an action that advertisers pay for might be an app download.

Don’t confuse CPC 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.

Why Should You Use Cost Per Action?

CPA marketing is suitable 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.

In any case, CPA 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

You can calculate CPA by dividing your total actions by the amount spent on the ad. This equation comes out as:

CPA = Amount Spent / Total Actions

“Actions” is whatever you define it as and will vary depending on the goal of your ad. It can be downloads, clicks, or anything else.

CPA: Cost Per Action

CPA: Cost Per Action

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

Good landing pages are a must if you’re using website visits as an action. Within seconds of finding your site, visitors will form their impression.

If they get a poor impression, 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. Eventually, you will create a page 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’s profile. It comes from careful market research into who needs your product or services most.

Example of a Buyer Persona

Example of a Buyer Persona

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

3. Write Effective Ad Copy

Copy is the defining aspect of most ads’ success. And 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 wake up and decide to buy things; you must explain why they should.

Then, bring it home with a compelling call to action (CTA). High-converting CTAs will be what makes your CPA profitable.

What is CPL in 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.

Imagine a web host negotiates a $50 lead rate with an affiliate.

However, they might require two months subscription for the affiliate to get paid. This ensures they are only paying for long-term customers.

The web host now has an established cost per lead they can factor into their budget.

When Should You Use CPL Marketing?

At its core, CPL is a metric that all businesses can and should use. You must know how much it costs to get a lead to keep marketing profitable.

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

CPL acronym marketing works best for products with long-term sale models. CPL is better than CPA if you plan on making money from leads for a long time.

Many SaaS companies prefer CPL because they make money from customers over time. But a store selling less expensive products could not.

How to Calculate Cost Per Lead

You calculate CPL by dividing marketing costs by the number of new leads. The formula is‌:

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).

CPL: Cost Per Lead

CPL: Cost Per Lead

How to Optimize Cost Per Lead

Dumping money into CPL marketing doesn’t guarantee results. Instead, you’ll need to carefully craft converting ads.

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, imagine you’re selling audio mastering services.

You can target people who frequently search for audio mastering. This group is more likely to convert than the general public.

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

Not all pages express equal interest. To illustrate, visiting a blog post page does not signal intent like visiting a checkout page.

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. Improving your site is of the best investments you can make.

3. Reduce Poor Quality Leads

Not all leads are equal. Some leads may look good on a spreadsheet but are unprofitable in reality.

Imagine if your CPL campaign kept getting calls about a product you don’t offer. These poor-quality leads will only inflate your CPL – not make sales.

You must optimize your CPL campaign if you’re getting lots of low-converting leads. Here are a few ways to filter bad leads:

  • Add pricing to your website. This may result in fewer calls, but they’ll more likely be from people who can afford 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.

CPA and CPL: Which is Better for Performance-Based Marketing

For ‌this article, the “action” in CPA will be sales. So now we can compare CPA and CPL directly.

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.

Conclusion

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. 

About John E Lincoln

John Lincoln (MBA) is CEO of Ignite Visibility (a 2017, 2018, 2019 and 2020 Inc. 5000 company) a highly sought-after digital marketing strategist, industry speaker and author of two books, "The Forecaster Method" and "Digital Influencer." Over the course of his career, Lincoln has worked with over 1,000 online businesses ranging from small startups to amazing clients such as Office Depot, Tony Robbins, Morgan Stanley, Fox, USA Today, COX and The Knot World Wide. John Lincoln is the editor of the Ignite Visibility blog. While he is a contributor, he does not write all of the articles and in many cases he is supported to ensure timely content.

You may also like:

  • PMax: Performance Max Campaigns
    How to Start with Performance Max Campaigns
  • paid media trends
    14 Biggest Paid Media Trends to Watch in 2023

  • Ad Fatigue: How to Recognize It & Avoid It

  • What is Pay-Per-Click? How Does PPC Work? (2023 Guide)

Search Here

NEWSLETTER // SIGN UP NOW

About The Editor

John E Lincoln, CEO

John Lincoln is CEO of Ignite Visibility, one of the top digital marketing agencies in the nation and a 6x Inc. 5,000 company. Lincoln is consistently named one of the top marketing experts in the industry. He has been recipient of the Search Engine Land "Search Marketer of the Year" award, named the #1 SEO consultant in the USA by Clutch.co, most admired CEO and 40 under 40. Lincoln has written two books (The Forecaster Method and Digital Influencer) and made two movies (SEO: The Movie and Social Media Marketing: The Movie) on digital marketing. He is a digital marketing strategy adviser to some of the biggest names in business. John Lincoln is the editor of the Ignite Visibility blog. While he is a major contributor, he does not write all of the articles.

LEARN MORE ABOUT JOHN

Contact Us. Let’s Chat!

  • Hidden

Marketing Guides

SEO In 2020: How To Prepare For Major Disruption

"SEO: The Movie" - Have You Seen Our Film? Watch Now

"Social Media Marketing: The Movie" - Have You Seen Our Film? Watch Now

Amazon Seller Central vs Vendor Central

Listen To The Podcast Featuring The Best Minds In Marketing

John Lincoln Interviews Global Director of Digital Marketing & Strategy at Qualcomm, Jessica Jensen

Check Out 227 Free Online Marketing Classes

The 2020 Guide To Dominating SEO With Advanced Schema

Learn More About Our Digital Marketing Agency

Learn More About Our SEO Services

Learn More About Our Paid Media Services

SELECT CATEGORY

Become A Contributor

Interested in writing for Ignite Visibility?

APPLY NOW

Services

  • Search Engine Optimization
  • Pay Per Click Management
  • Conversion Rate Optimization
  • Website Design & Development
  • Social Media Company
  • Public Relations
  • Amazon Marketing Services
  • Franchise Marketing
  • International Services
  • Digital Marketing Agency Services

About

  • Our Team
  • Our Values
  • Clients
  • Reviews
  • UCSD Extension Courses
  • Careers
  • Tools & Resources
  • Sitemap

Contact

4250 Executive Square, Suite 100
La Jolla, California 92037

619.752.1955

Join The Newsletter

Sign up for our newsletter to get the latest from Ignite Visibility.

google parther logo

©2023 Ignite Visibility. All Rights Reserved. Privacy Policy