May 21, 2010

How Much Should a New Customer Cost?


Hostway Team

By Buffy Cranford

If your marketing budget includes online advertising with affiliate networking Web sites, outlining a successful online Cost Per Action (CPA) plan is essential for increased profits. A CPA describes the price your business is willing to pay an affiliate marketing network for business leads. In this article we examine the basics of CPAs, pricing, marketing and successful CPA examples for getting the most out of your advertising dollars.

Cost Per Action Basics

If you are considering online marketing, there are a host of CPA affiliate network providers who work with marketing Web sites for promoting your business. These providers offer a variety of online advertising methods and charge a cost per action (CPA). The CPA affiliates can bolster your business by directing traffic to your business Web site using qualified actions, such as registrations that generate sales or leads.

Pricing and Marketing

When it comes to paying for advertising, as with any marketing goal, your cost per action should never exceed your gross profit. If your CPA consists of a simple name, address and email form, you can expect to pay less than if the CPA includes a multi-page form including credit card information for a free trial of your product or services.

For email collection, an aggressive price point would be $10 per lead generated. With a multi-page form, including collecting secure credit card information, a successful CPA would pay $25 to $30 per lead. With CPA marketing, the more the affiliate earns can result in more aggressive placement and exposure to a wider audience for your advertisement.

Very few affiliate networking Web sites display pricing without a sales call, but if you know the maximum amount you are willing to pay per lead, you can better negotiate costs and terms. These affiliates can help you establish an ROI (return on investment) goal based on your advertising budget. For example, if your advertising budget is $5,000, at $25 per lead you might generate 250 sales totaling $11,000, and your ROI would be $6,000.

Your affiliate provider should also work with you on a cost per action goal. When you set your maximum advertising budget, the affiliate converts the budget, averaging the price of each lead and determines the date range for your advertisement.

Short-term Commitments

Although many affiliate network contracts offer incredible price breaks for long-term contracts, signing a short term contract with an affiliate may result in higher returns. With a shorter contact, you can closely examine your gross profits and compare your revenue to CPAs. Then, if marketing performance does not meet your expectations, you can avoid paying an affiliate marketer for months without generating profits.

When budgeting for a cost per action plan, research potential affiliate networks and determine which company offers ROI and CPA goal-setting services as well as negotiable rates. Although lower pricing from various affiliates might be tempting, a successful CPA will offer a reasonable profit for affiliate marketers and will likely result in higher visibility and profits for your company.

About the Author

Buffy Cranford specializes in computer hardware, software and technology. She has written numerous articles in association with established companies such as Dell, IBM and Acer.

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