In its relatively short history, Internet marketing has introduced many pricing models in the way that websites and companies advertise online. What started as cost per mille (CPM) has evolved to cost per action (CPA), including cost per lead (CPL) and cost per call.
When reviewing the mix of online spend by pricing model it is clear that budgets are shifting to a performance based marketing approach. In fact, several leading search engines have rolled out a pay for performance model. Obviously, the change by larger players is applying pressure for smaller, independent online firms to follow suit to stay competitive.
Why the change? Advertisers are becoming dissatisfied with their current returns on investment (ROI), and they're looking for a way to reduce the amount of risk associated with their marketing campaigns. With CPM and pay per click (PPC) advertising, advertisers never quite know what they're going to get for their investment. It's just like buying a television or radio commercial or a billboard; the company's name is getting out there, but the marketers behind these advertisements are not sure what the return will be.
That's where performance marketing comes in. Now, instead of companies using their own in-house marketing teams, there is a trend toward sending this task out to marketing specialists that are experts at knowing what type of advertisements will convert into sales or leads. Advertisers are willing to go this route because not only will they have a dedicated team of marketers placing their ads and links in strategic locations, but they will also only be paying these marketers if their ads convert.
One of the leading search engines explains pay per action (PPA) as being a three step process. The first step is generating ads and defining actions, the second is securing publishers to display these ads, and the third is paying for the completed actions prompted by these ads. It's a simple and effective strategy, and it's being adopted by countless advertisers who are looking for high ROI and low risk advertising.