What Is Pay Per Action And How Will It Pay?

You know all about pay per click, but what is pay per action? Pay per action is the new model of advertising that has yet to be implemented, but I expect it to start becoming more popular over time. Essentially, pay per action allows the advertiser to bid on certain self-defined actions. Like pay per click, you’ll get to bid based on the value of the action and compete with other advertisers on a like-action basis. The actions that you bid on depend on what you want ad clickers to do once they arrive at your website.

For instance, are you trying to get them to sign up for your free e-zine? If so, then you’ll bid on that action. If you want them to make a purchase then you’ll bid on that action. If you don’t care what they do when they get to your website as long as they get there then you might bid on the consumer simply clicking your ad. Whatever action you define is the action that you’ll bid on.

How will you make money on pay per action advertising? Well, much like you do with pay per click. You pay X amount of dollars for your advertising and you make X amount of dollars in revenue as a result. The difference is your ROI. But how do you measure ROI on actions that may or may not directly influence it?

An example might be a video that you have produced for marketing purposes. You bid .05 for every consumer who clicks to watch your video. But the video’s goal is to get people interested in your website landing page. They go to the landing page and buy a book. Let’s suppose that of every 20 people who click to watch your video (translates into $1 ad spend), 50% go to your website’s landing page to read about the book you want them to buy. That means you have to spend 50 cents just to get people to read your sales literature. Out of those that visit the landing page, let’s assume that 10% buy the book, which sells for $10. Let’s break it down:

• You pay .05 per click
• 20 people click your video to watch
• Your ad spend is $1
• 50% of video watchers go to your landing page
• That translates into 10 visitors who read your sales literature
• 10% of 10 visitors translates into sales (1 person) at $10 a pop

Conclusion: You spent $1 to make $10.

You can do this kind of analysis with any action. But first you have to define the action and set a price. The bid price should be related to how much the action is worth to you. In the above scenario, I would raise the bid on the action to see if I get any more sales. I can double my bid and end up spending $2 for advertising. If I don’t sell any more product them I’m still profitable even though my profit won’t be as large. But if I sell just one more book based on the new ad spend then I’ve increased my profit:

• $1 ad spend = $10 in sales; $9 profit
• $2 ad spend = $20 in sales; $18 profit

The key is to find the optimal bid price that will allow me to maximize my profit. If I keep raising my bid price to see at what point my sales start to decline or level off then I’ve found the optimal bid price and I’ll leave my bid per action at that price.

Managing a pay per action campaign, when that option becomes available through the current advertising companies, will be much like managing a pay per click campaign except that you as advertiser will have more control in defining the actions that are important to you.