We all have many options these days for monetizing our sites. The big challenge is figuring out which
set of ads is going to generate the largest amount of revenue for us. As you correctly pointed out, there are
several networks that pay you on a per-click basis (CPC or cost-per-click) dominated by Google AdSense
and quite a few networks that are compensating you based on some kind of user action,
such as purchase of a product from the advertiser (CPA or cost-per-action). Almost all affiliate networks pay you on a CPA basis.
Obviously, there is plenty of room for both. In a way, the only way these networks exist is because people who click on the networks' ads
eventually purchase from the advertiser (and if not from the advertiser #1 then some other advertiser who advertises on advertiser #1's site -- this chain could go quite deep). This dependence
on an eventual purchase makes these advertising networks quite similar.
The major difference between them is who takes all of the risk for the ad.
CPA-based networks pass all the risk to your
site. If your user clicks on an ad but makes no purchase (in other words, does not convert), you will typically not get paid. However,
when the conversion does occur, you will get paid well for it. For example, if someone purchases an
Amazon Gift Certificate
from this site, I will
receive 6% of the value of the gift certificate ($100 gift certificate will net me $6 in earnings).
CPC-based networks, on the other hand, pass a significant amount of risk away from your site to the advertiser. If a user clicks on an ad,
you will get paid a small amount. If the user ends up not converting on the advertiser's site, the advertiser has lost however much he bid
to receive this click. There is a vast range
of what advertisers bid on a CPC basis and much of it depends on what they are selling
and how competitive their space is. A good range is to pay $0.50 per click
of which you would receive about $0.25 after the network takes their cut of about
50%.
In the above example of an Amazon Gift Certificate, if Amazon were paying you $0.25
per click, you would break even between CPC and CPA methods if one out of every
24 clicks resulted in a purchase of a $100 gift certificate. Here's how this
math works:
|
CPC
|
CPA |
$0.25 per click
*
24 clicks
$6 in revenue |
$100 Gift Certificate purchase
*
6% in fees
$6 in revenue
|
If the assumptions above held true, it would make both networks equal in value to
you. However, there are additional factors that play a role in making a good
decision.
Factor #1: Competitive Marketplace
Google has created an extremely competitive marketplace where various advertisers
are bidding against each other to win the privilege of displaying an ad to your
site's readers. Thus, CPC networks such as Google carry an inherent mechanism
that drives advertisers to bid high. If an advertiser does not have good analytics in place (which most small advertisers do not), there is a very
good chance that in an effort to win the advertising slot they will bid too high and
even lose money on the transaction. If an advertiser bids too high, your site
(and Google, of course) are the winners.
CPA networks, on the other hand, do not have a competitive marketplace established.
If you choose to run Amazon's ads on your site, there is only a single advertiser
for that slot: Amazon. I can assure you that Amazon has excellent analytics
in place and it is very unlikely that they would be willing to lose money on the
transaction. Thus, without the competitive marketplace and with a sophisticated
advertiser, you are likely to not see the same level of monetization of your site
with the CPA network as you would with the CPC network.
Factor #2:
Ad Relevance
The second factor that plays a role in this decision is the fact that no matter
how competitive the CPC network is and how high their per-click payouts are, if
the ad displayed to your reader is irrelevant, the reader will not click on it.
It has been long proven that the more aligned an ad is with the content of your
site, the more likely the reader is to click on it and eventually convert (purchase
something from the advertiser). So, if your site is about Microsoft Windows,
the user is more likely to interact with an advertiser who is selling a "Learn Windows
Vista" Video than an advertiser selling a window cleaning solution.
CPC networks typically rely on a computer algorithm to decide which ads are most
appropriate for your site. While Google has done an exemplary job of scanning
your web and learning its content, it still makes many mistakes and displays random
ads that have nothing to do with your site. With CPA affiliate networks, on
the other hand, you have an opportunity to hand-pick the product you would like
to show to your readers. You will always make a better choice in picking the
most relevant product for your site than the computer algorithm. While the
downside of picking your own products is you having to spend a significant amount
of time trying to figure out what product to advertise (which may or may not be
practical if your site has many different posts on various topics), the upside is
that you are likely to monetize the hand-picked CPA ads at a higher rate than algorithm-generated
CPC ads.
Conclusion
In conclusion, I would stick with CPA offers when you have the opportunity to pick
the "perfect" product that matches the content of your page exactly. I would
stick with the CPC network if you cannot chose the perfect product or it is too
tedious for you to do so. I would stay away from CPA offers that rely 100%
on an algorithm to decide which offers to show. In the end, use my suggestions
as a guide and remember that you have to experiment to learn what works best for
your site.
| Gene Kavner, Former World-Wide Director, Amazon Associates, 2005-2006 |
|
Thanks to Shawn Collins, Sam Harrelson, Scott Jangro, and Jim Kukral for naming AffiliateBrand.com one of Top Web 2.0 Sites and Applications during their eComXpo panel titled “Web 2.0: Views from the Thought Shapers”.
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