It's All About Results

Is pay-for-performance online marketing right for your business?
Magazine Contributor
3 min read

This story appears in the October 2004 issue of Entrepreneur. Subscribe »

Wish you could pay for results instead of high hopes when it comes to online marketing? Well, you can. Although finding programs that allow you to pay on a per-lead or per-order basis requires research, they are out there. But the pay-for-performance model doesn't work for all companies, however, so follow these steps before engaging in a program:

1. Determine your cost-per-acquisition (CPA) goal. With performance-based advertising, you know the rate you'll pay to acquire leads or sales before you spend any money. Do your homework before you negotiate CPA deals with vendors. By identifying your current customer acquisition costs from your offline and online marketing programs, you'll see the range of profitable possibilities. Push for the lowest payout. If you need to increase your per-lead or per-sale amount to seal the deal, refer to your analysis to choose a rate that will work for you.

2. Ask vendors to run a test campaign. A test campaign helps first-time CPA advertisers immediately determine what they could pay per lead or per sale to that vendor. However, it's not the recommended action plan for companies with customer cost data. That's because vendors want you to pay the highest rate they can get. Therefore, use a campaign test as a negotiation starting point if their proposed number is less lucrative than what you're achieving with your cash media buys. And why not run test campaigns with several vendors? If they have similar distribution channels and strategies, then cost will certainly be a determining factor in your selection criteria.

3. Don't abandon your other advertising programs. Thinking of canceling your other ad programs now that you've signed a CPA deal? Don't do it. Even if performance-based advertising is your most profitable program, it might not have the volume or reach that other marketing programs do. Let's say you only spend $5 to get a customer from a CPA deal but end up paying $10 through another marketing program. If the former program delivers only 10 customers, while the latter yields 100, the CPA program might be more profitable at a per-customer level but could lack sales volume.

There are also customers who can't be reached through performance-based advertising-such as subscribers of an online newsletter, for example. Even if the newsletter publisher requires payment for the ad space, results might be well worth the financial risk of advertising to that targeted audience.

Internet marketing agencies, such as Performics, run performance-based advertising programs for a variety of companies and industries. Also investigate Web sites with a topic focus; pages of lead-generation sites appear in Google's search results for "real estate leads" and "auto insurance leads." Even if a site doesn't openly promote a cost-per-acquisition advertising program, there's always the opportunity to negotiate.

Speaker and freelance writer Catherine Seda owns an Internet marketing agency and is author of Search Engine Advertising.


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