To start with, let's ask the simple question:
What is an 'Action'?
What is an 'Acquisition'?
Another term that can be used synonymously with these two is 'conversion'. And if you've ever heard of a 'call to action', then this basically describes the same thing. A call to action is a call to do the thing you want your audience to do, which in the vast majority of cases is to buy a product, or sign up to a mailing list.
So with CPA marketing, you would first set up your goal or your action and then you would set up tracking so that you only paid when that thing happened. So for instance, if someone were to click on your advert, then get taken to your website and then buy your product, you would get charged. But if they were to click on your advert and then leave, you wouldn't get charged anything at all.
As you might imagine, this is a rather positive situation for you as an advertiser.
You see, a click on its own does not guarantee any value for you. If someone clicks on your PPC advert, goes to your website and then is unimpressed with your products and services on offer, you'll have paid for that click and received nothing in return.
On the other hand though, if you are only paying for each action, then you will be earning money for every time someone clicks on the advert. So if you can workout that you get $20 for every purchase of your e-book and you're paying only $1 for your CPA – then you know that every click on an advert will earn you $19. This works very well for you because you know you're getting money out of your advertising campaign and it works well from the advertiser who is still getting paid for your business.
Now here's the thing: CPA marketing doesn't always mean that you pay only when someone buys your product. In fact, that is relatively rare. Instead, with CPA you will still normally pay per click. That's what makes this still a form of PPC advertising (other than the simple fact that the two are very similar and it's convenient to describe them with the same term).
So if you're paying per click, how is that CPA at all? Well basically, the advertising platform will give you the ability to break down the information and to see when you're actually gaining an acquisition. What this means is that you can then look at the percentage of clicks that are resulting in an acquisition and you can see what you're paying for each of those clicks.
So if you're paying $1 for every 100 clicks, and 1 in every 400 people buys your product, then you now know that you have a cost per action of $4.
Is this a concrete and reliable number? While you might worry that this figure is based purely on trends, for any big business that is going to be good enough. If you're getting thousands of clicks a day and that average is calculated on that data, then it is almost always going to hold true. Sure, you will sometimes see a little deviation from this average as the cost goes up and down. But overall it's all going to even out over the long term.
This is in fact just the same way that a casino works – they play the odds but because those odds are on such a large scale and they are slightly tipped in favor of the house, they can still accurately predict their revenue.
