Over the past four years, we have had the pleasure of working with a broad range of advertisers. While the size, budget and campaign objectives vary between brands, there are a few common questions that all advertisers need to answer. One of the more prevalent being, which cost model should we use?
This question deserves serious thought, as there are pros and cons to the various cost models. Making the right choice requires a full understanding of the implications of each model, as well as a firm understanding of your goals and capabilities.
There are three major types of cost models for metasearch campaigns:
- CPC – cost-per-click
- CPA – cost-per action, where publishers charge a flat fee or % of booking value
- Hybrid – which is a combination of the two
These cost models can individually become more complicated. In Google Hotel Ads, advertisers can adjust CPCs based on many different factors such as the room rate, the placement of the ad within the search results, the length of the stay, the location of the user, and the type of device a user is using. TripAdvisor CPCs can be modified based on the placement and user audience. The remaining publishers vary in their approach, but most allow bidding by placement and device type.
For the purpose of this post, we will focus on the first two options, as the third is a merely a mixture of the first two.
A CPC model applies to any auction environment where the advertiser pays a negotiated price for each click. Depending on the publisher, the CPC can be either flat or variable. Typically speaking, CPCs, also referred to as bids, can frequently be updated. Depending on the publisher, updates can be made in real-time or on a daily basis.
The CPC model gives you the highest level of control over spend, enabling granular control on what advertisers pay on a click-by-click basis. There is tremendous flexibility in this approach, which translates to more control over total traffic and visibility in the metasearch environment. A CPC model requires a deeper understanding of campaign performance. This model does not guarantee a specific return rate, and it requires a higher degree of management when compared to cost-per-action (CPA) models.
A CPC model is best when attempting to drive traffic, bookings, or impression share. It is also best when an advertiser focuses on maximizing the efficiency of spend. If there is a lack of resources or knowledge needed to manage a CPC campaign actively, consider an alternative. Advertisers who are unable to conduct the analysis necessary to be effective may not be able to operate a very successful CPC-based campaign.
Also Read-Top 10 Best CPC Networks
In a CPA model, advertisers pay a rate based on user actions. If a metasearch user makes a booking, then an advertiser on a CPA model will pay a percentage of the booking.
In a CPA model, the publisher guarantees the return metric. Advertisers only pay based on performance, meaning they never have to worry about extremely inefficient spend. This guarantee does, however, comes at the cost of control. CPA models remove the levers advertisers need to scale campaigns efficiently.
Additionally, CPA users only maximize performance when the negotiated rate perfectly matches the best case scenario that a CPC model could achieve. Finding this perfect rate is a near impossible task. Optimal efficiency is a moving target, influenced by multiple market factors including seasonal demand, competition, and portfolio performance.
A common argument made for CPA models is that they create a shared goal between publisher and advertiser. This joint purpose, in theory, should lead to both parties finding the optimal positioning for the brand. Our experience, however, shows that CPA models do not maximize efficiency because it does not react to changes in the market, auction, or business needs. Ultimately a CPA-based campaign accepts that there will be missed revenue opportunities. Furthermore, advertisers often view this model as controversial. Opting in requires that brands share booking data. Marketers fear that this lowers long-term negotiating power when determining the cost of advertising.
A CPA model is best only when the advertiser is not concerned with maximizing performance. Advertisers looking to
Also Read-Top 10 Best CPA Networks
Comparing CPC vs. CPA – A Case Study
To better illustrate the differences that exist here, let’s walk through a recent case study.
An incoming client had historically run CPA campaigns due to the concern that the costs and time it would take to run a CPC campaign would outweigh the benefits of a CPC model. The client wanted to assess if the CPA model truly was the most useful model for them with the following goals:
- Increase YoY bookings
- Increase direct traffic
- Maintain or improve their current return
Our team developed a test to determine how a CPC model would affect the performance of a sample set of properties. The team focused on maximizing the performance of the portfolio at a granular level. Leveraging the full suite of bid controls and internal bidding tools available in Koddi, the strategies were designed to scale the campaign while maintaining efficiency.
The team discovered that the previous campaign had placed too high of a focus on lower cost/lower revenue traffic. This likely protected return, but limited opportunity. By maximizing the visibility of high-value traffic, traffic that costs more but yields bigger bookings, the team was able to drive immediate and lasting results for the client.
The results were ideal. The client saw an increase in bookings, conversion rate, and improvement in return. The increase in bookings, in turn, allowed a larger investment in the metasearch channel and enabled significant scale for the campaign.