Cost Per Action Marketing and Pay Per Lead Model

Affiliate marketing is essentially a Cost Per Action marketing. When there is performance/action — you pay your affiliates. Performance can be of several types, but the most frequently valued ones are sales and leads. Therefore, online businesses either pay a percentage (or a flat amount) of every sale an affiliate refers to them, or a flat amount per every lead the affiliate generates. These payment models are known as Pay Per Sale or PPS (aka Cost Per Sale / CPS), and Pay Per Lead (or Cost Per Lead / CPL) models respectively.

A merchant has emailed me the following question:

We are an e-tailer with a PPS affiliate program. We’ve reached out to a promising affiliate, but they told us that they work with advertisers solely on PPL basis. Is there any way we can make this work for us?

I believe there is. It’s just a matter of doing your calculation right. Since the Pay Per Lead model presupposes paying for potential customers (as opposed to the PPS model where you pay for actual buyers), you want to calculate the value of lead generation (aka lead-gen) for you, based on such factors as: demographic, average lead-to-sale conversion rate, average order value, etc. It is not uncommon for an affiliate program to pay affiliates both a flat amount for every lead sent in, and a commission of every sale referred.

Besides determining the comfortable per-lead payout amount, you will also need to clearly define what constitutes a valid lead for you. You and your affiliates need to be on the same page here. Are you paying for subscriptions to your newsletter, and is it sufficient for the end-user to simply submit a valid email address (“valid” can be (a) one that will not bounce the confirmation message off, or (b) one that double opts in to subscribe)? Or are you requiring for more detailed contact information (full name, address, telephone number) to be submitted? Are there any geographic (e.g. only U.S. leads, or only North American leads, etc) or other restrictions (for example, I’ve seen some merchants require that the telephone numbers submitted match the mailing addresses, while others remunerating affiliates for “leads” with incomes above a certain threshold)? Spell out everything that matters right from the outset. It’ll save both you, and your affiliates, a lot of headaches.

2 thoughts on “Cost Per Action Marketing and Pay Per Lead Model”

  1. Geno,

    I just started a video sharing website where I encourage people to upload humorous videos, viral or not. I am sure most websites like mine probably have this same problem when first starting out but I have found it is far more difficult to get people to upload videos not difficult to draw them to the site to view videos. I wondered if there are any low cost types of service (pay per action or otherwise) you could recommend where I could get some help with this? Any suggestions you can offer are appreciated.

    1. Stephane, thank you for your question. While you can certainly launch an affiliate campaign, remunerating everyone who sends you a video owner, it seems that contests should generate good buzz, and be much more affordable. Look at what others are doing (for instance, in the photo contest vertical). I’m sure you’ll get ideas. 😉 Good luck!

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