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Cost per Action (CPA), also known as Pay per Action (PPA), is an Internet advertising pricing structure, where the advertiser only pays for each specified action, whether it is submitting a form, making a purchase, downloading, etc. linked to the advertisement.

Generally direct response advertisers consider this advertising venue as they only pay once the desired action has occurred. This desired action is determined by the advertiser.

Some people often refer to CPA as Cost per Acquisition. This is not incorrect as in the majority of instances the advertiser may require the acquisition of a product or service before paying for the advertisement.

Effective cost per action

Effective cost per action (eCPA) is used to measure the effectiveness of advertising inventory purchased by the advertiser on a CPI, CPT or CPC basis. This will indicate to the advertiser what they would have paid if they purchased the advertising inventory on a CPA basis.

What is CPM?

Cost per Mille (CPM) is often commonly known as cost per thousand (Mille in Latin means thousand) and is a measurement used in advertising on the Internet as well as in print and television media which can be purchased on the basis of what it would cost to show the advertisement to one thousand viewers (CPM).

An example of computing the CPM:

1. Total cost for running the ad is $15,000.
2. The total audience is 2,400,000 people.
3. CPM is calculated as CPM = $15,000/(2,400,000/1000) = $6.25

Effective cost per mille

Effective cost per mille (eCPM) is used to measure the effectiveness of a publisher’s inventory being sold via a CPA, CPC or CPT program. In effect eCPM will indicate to the publisher what he or she would have earned if the sold the advertising inventory on a CPM basis.

The History of PPC Advertising

During February 1998, Jeffrey Brewer of Goto.com presented a pay per click search engine proof-of-concept to the TED conference in California, USA. This presentation rocked the advertising industry and led to the establishment of the PPC advertising program. Credit for the concept of the PPC program is generally given to the Idealab and Goto.com founder, Bill Gross.

Yahoo.com started its PPC service in 1998.

Although Google started search engine advertising in December 1999, it was not until October 2000 before the AdWords system was introduced, where users were allowed to create text ads for placement on the Google search engine.

Officially PPC advertising was only introduced in 2002, but until then advertisements were charged at a ‘cost per thousand impressions’ rate.

What is PPC advertising?

Pay per click (PPC) is an Internet advertising program used on websites from around the world. In this business model the advertiser will only pay the host once an advertisement is clicked. The advertiser will typically bid on keyword phrases relevant to the product, service or website they want to advertise.

Cost per Click (CPC) refers to the amount of money the advertiser will pay the each time an advertisement is clicked.

A website that makes use of PPC advertisements in generating income will display the advertisements throughout the website or on specific pages. Generally webmasters sign up as a publisher with a host, the same institution where the advertiser signed up as an advertiser. Every time a visitors clicks on an ad, the cost to the advertiser will be shared between the host and the webmaster.

There are a large number of PPC providers from around the world, but the three largest operators are Google AdWords, Yahoo! Search Marketing and Microsoft AdCenter.

Determining Cost per Click

Currently determining the cost per click is based on two primary factors: Flat-Rate and Bid-Based.

Flat-Rate PPC

With flat-rate PPC programs the advertiser and the publisher have agreed upon a fixed amount that will be paid for each click.

Bid-Based PPC

With this program the advertisers enters into a contract that allows them to compete against other advertisers in a private auction hosted by a publisher or the advertising network. Here each advertiser will indicate to the host the maximum amount he is willing to pay per click for a specific ad spot.

Webmasters making use of CPM or PPC services are urged to reconsider and properly investigate the usage of popup and popunder advertisements on websites as a source of generating income.

Many reports have surfaced on the Internet where webmasters and their visitors complained about the number of malware contained in popup and popunder advertisements placed on websites. This malware include the silent installation of browser hijackers, trojans and other type of viruses.

Investigations revealed that this type of malware originated from a number of legitimate services providers and it would appear that unscrupulous advertisers misuse these advertising services in installing malware in the advertisements.

If a webmaster is interested in making use of these types of advertisements, it is highly suggested that investigation is first conducted on the Internet on the advertising provider and their services. By conducting search engine searches on the provider webmasters will often be in a position to identify targeted advertising providers who pose a risk to their websites.

Another disadvantage is that users may report websites to search engines. Such search engines, especially Yahoo! And Google, may list a warning against the webmasters’ site. This will drive away tons of new potential traffic.

One important thing to take into consideration is whether the CPM rate is worth the number of visitors one will loose. Often advertising providers will pay a fee per 1000 unique views of the popup or popunder. This fee is often less than 4c. Is this 4c really worth loosing a large number of website visitors and getting blacklisted in search engines such as Google and Yahoo!?

It is a common fact that the majority of webmasters are experiencing a decrease in PPC earnings from a number of PPC advertising companies. In recent months we saw a number of reports from webmasters stating that earnings per click have decreased across the board.

One need to keep in mind that there are a number of factors that may influence the costs per click on advertisements. One of these factors are the origin of visitors. It is a general fact that visitors from countries such as the US, UK, Europe and Australia will generate larger income per click than visitors from other parts in the world. Take a look at your stats and see if there are any noticable changes in traffic to your website.

Another factor is website content. If your website expanded and include more content not related to the niche, your website will attract non-related advertisements which may pay less in PPC. Always ensure that you re-visit your website and look up on the latest content added. Pay attention to the keywords contained throughout the site as this may directly influence your earnings.

Personally we suspect that the biggest contributor to the decrease in PPC earnings is the current global financial crisis. As more companies focus on cost-saving they also close the taps on advertising expenditures. This in turn directly impact on PPC advertising companies. Due to lower numbers in advertising PPC revenue sharing with publishers also decrease.

One can only wait and see how PPC earnings will be effected once an upturn in the financial crisis occurs.