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Hot Tips for Negotiating Online Cost-Per-Action Deals
Find out how not to get burned when using cost-per-action deals and pay-for-performance agreements for your online media.
Posted Dec 11, 2001
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Mother said never play with fire?It is hot. It burns. It has a life of its own. The same could be said for the online cost-per-action (CPA) deal.

Pay-for-performance (PFP) is hot, but if the life of a CPA deal does not go well, someone is bound to get burned. The trick to success is to understand and actively maintain a PFP arrangement. There is a beginning, middle, and an end. And it is the advertiser?s job to ensure every life phase of the CPA deal is successful.

The Beginning
CPA deals are born in different ways. While some companies like RegisterOnce.com, ValueClick, and Direct Net Advertising readily offer PFP, finding enough suppliers providing the effective model to reach the critical mass is a laborious proposition. Forrester Research Inc. estimates that only 15 percent of all online media purchases are performance-based, but that number is growing fast. So with little current supply, the demand for PFP is hot.

"The demand for PFP is insatiable," notes Erik Obeck, COO for Direct Net Advertising. "Advertisers are saying ?I?m not taking the risk, I want you to take the risk.?"

Understand up front that PFP is a shared risk for all involved--the advertiser, the broker, and the site carrying the message. The key to successful CPA arrangements is relevancy. Many CPA deals are born from unsold inventory. With almost half of online ad inventory going unsold, top sites are forced to go beyond the usual cost-per-impression pricing model and offer creative ways to shed excess inventory.

"It?s like a fire sale," Shelley Gosney, former manager for DoubleClick Network, says. "Online ads are valuable, but once an impression is gone, it?s gone forever. So the pressure for top sites to sell inventory is great. In this situation, pay-for-performance is extremely relevant for the Net?s top sites."

According to Forrester, eventually marketers will pressure media to take performance-based pricing for 83 percent of all media spending. But until PFP hits the masses, marketers need to know who to call and what to do to get the deal done.

The Middle Men and Women
There are a growing number of intermediaries who negotiate deals on the front end so you can benefit on the back end. Direct Net Advertising client Bissell Inc. approached the company when few surfers were clicking through sites touting deals on its carpet cleaners and vacuums. Fewer still were inspired to buy the products online. So Bissell marketing executives decided to try something different.

"We did our first campaign with Direct Net Advertising in July," Brian Verlinde, Bissell's manager for e-commerce, says. "It worked so well that we keep throwing things at them."

When approaching brokers like Direct Net, Obeck says the key to negotiating an effective CPA deal is using your highest ad allowable. "We don?t get paid unless there is an action," Obeck says. "So we have to screen opportunities to ensure qualified actions."

Defining the qualified action is really up to the advertiser. Do you want purchases, perhaps downloads or personal data, or maybe solid leads? It is up to you. But you must be clear about expectations so brokers can generate the most effective deal. In addition to brokers, there are other ways to search out PFP situations. Take matters into your own hands and think of creative ways to target sites appropriate for your audience.

So whether you are the middleman or you hire one, these rules always apply when establishing elements of the deal:

•Know how much you can spend up front for effective return-on-investment (ROI) in the end.

•Determine your expectations for quantity, quality, and the like.

•Motivate brokers and Web sites with relevant information and/or offers that generate qualified actions.

•Make it relevant for all involved--especially your consumer.

In the End
Good or bad, in the end your CPA deal will have a life history that will help you track if the campaign worked. Throughout the entire process, it is important to track all efforts. That will help you determine the next steps. The key to creating ROI lies in the Net?s inherent interactivity between consumer and advertiser and the ability to track all efforts.

If we are currently learning anything in online marketing, it is that consumers rule, their online-decision processes change rapidly, and the focus must be on cost-effective ways to gain customers. And not only gain customers, but also to measure exact performance of marketing methods.

Forrester predicts that by 2004 53 percent of the United states? online spending will be based on performance models. With plenty of ad inventory and ROI measurement tools, marketers will need to insist on CPA distribution. Savvy marketers know the future belongs to online consumers who provide feedback that will continually shape marketing techniques and tools.

Tracking each PFP situation will help you become a better marketer and will allow you to leverage learned knowledge for the next CPA opportunity. Although PFP arrangements are never clear-cut situations, knowing how to manage a deal from beginning to end will put you closer to a desired result. And remember, if you want your online marketing efforts to sizzle, sometimes you have to play with fire.

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