Foundations · Lesson 2 of 6

CPA, CPL, CPS or CPC: choosing a pricing model

About 10 minutes · Yogender Kumar, Managing Partner

By the end of this lesson you'll be able to

  • Explain what CPC, CPL, CPA and CPS each pay for
  • Calculate the cost per order behind a cost-per-click offer
  • Choose a pricing model that fits your margins and your sales process

Why this matters

Sooner or later a partner will offer you a price. It might be 40p a click, £15 a lead or 12% of every sale. Those three numbers can't be compared as they stand, and the cheapest-looking one is often the dearest. This lesson gives you a way to put them side by side.

The core idea

Every pricing model decides who pays when a visitor doesn't buy.

CPC (cost per click). You pay for each visit. If nobody buys, you've still paid. Search and social platforms mostly charge this way.

CPL (cost per lead). You pay for an enquiry, such as a quote request or a completed form. The partner carries the risk of visitors who leave without enquiring. You carry the risk that the lead never becomes a customer.

CPA (cost per acquisition). You pay a flat fee when a defined action happens. Usually that's a sale, but it can be a first deposit or a paid subscription.

CPS (cost per sale). You pay a percentage of each order. A bigger basket earns the partner more.

So the models sit on a line. At one end you carry the risk. At the other end the partner does. A partner who carries more of the risk will ask for more per result. That's fair: they absorb every visitor who doesn't buy.

Who carries the risk that a visitor doesn't buy

CPC: you pay per click · Mostly you

CPL: you pay per lead · Shared

CPA: flat fee per action · Mostly the partner

CPS: % of each sale · Mostly the partner

A rough guide, not a measurement. The further right the risk sits with the partner, the more they will ask to be paid for each result.

Worked example

Northfield Home is the imaginary homeware shop from Lesson 1, so the figures are illustrative. An average order is £60, its break-even CPA is £24 and its target CPA is £18.

A publisher offers two deals:

  • Deal 1: 40p for every click.
  • Deal 2: a flat £16 for every validated sale.

The flat deal is easy to judge: £16 is under the £18 target.

The click deal needs one more number: how many visitors buy. That's the conversion rate. Cost per order is the cost per click divided by the conversion rate.

  • If 2% of visitors buy: £0.40 ÷ 0.02 = £20 an order. That's above target, though still under Lesson 1's £24 break-even.
  • If 3% buy: £0.40 ÷ 0.03 = £13.33. That's cheaper than the flat deal.
  • If 1.5% buy: £0.40 ÷ 0.015 = £26.67. Every order now loses money.

The click deal could be the best or the worst of the two. It depends on a number Northfield doesn't control. That's the risk it would be taking on.

My view: if you have months of reliable conversion data from this kind of traffic, the click deal can be worth it. If you don't, take the flat fee.

Northfield's cost per order on CPC, at three conversion rates

Target £18Break-even £24

1.5% of clicks buy

£26.67

2% of clicks buy

£20

3% of clicks buy

£13.33

Flat CPA offer

£16
At £0.40 a click, the cost of an order depends entirely on how many visitors buy. The flat £16 CPA offer stays £16 whatever happens.

Which model suits which business

  • Ecommerce with steady margins: CPS. It rises with basket size, and content, cashback and voucher sites all understand it.
  • Subscriptions and apps: a flat CPA on the first paid month or a first action. It means you don't pay for free trials that cancel.
  • Insurance, finance, education and B2B: CPL, because the sale often happens later, on the phone. Lesson 5 covers keeping lead quality up.
  • A new brand with no sales history: a hybrid, such as a small fixed fee plus a commission. Partners won't take all the risk on a brand they can't judge yet.

In practice

  • Convert every offer into the same unit: cost per order or cost per customer.
  • For any click-based offer, ask what conversion rate you'd need for it to beat your target.
  • Write down exactly what counts as a sale or a lead before anything goes live.
  • Agree how long you have to check sales before you pay, so returns and cancellations come off.
  • Review the model after three months of real data, not after three days.

Common mistakes

  1. Comparing the headline prices. 40p, £15 and 12% are different units. Turn them all into cost per customer first.
  2. Paying a percentage on gross order value. If customers often return items, commission on the full basket overpays. Pay on orders net of returns and excluding VAT.
  3. Choosing CPL when the sale happens online. If someone can buy on your site there and then, pay for the sale, not the form fill.

Try it yourself

One publisher offers £1.20 per click, and about 4% of those visitors fill in your quote form. Another offers £22 per lead. The most you can pay for a lead is £25. Which offer, if either, fits?

Show answer

The click offer works out at £1.20 ÷ 0.04 = £30 per lead. That's over your £25 limit. You'd also carry the risk of the form rate dropping. The £22 lead offer fits inside £25, so take it. First agree in writing what counts as a valid lead.

Quick check

Not scored. Pick an answer to see the explanation.

  1. Under which model does the partner carry most of the risk that visitors don't buy?

  2. You pay 50p a click and 2.5% of visitors buy. What does each sale cost you?

Key takeaways

  • Each pricing model decides who pays when a visitor doesn't buy.
  • Turn every offer into cost per order or cost per customer before you compare.
  • Cost per order on CPC is the cost per click divided by the conversion rate.
  • Partners who carry more risk will ask for more per result, and that's fair.
Key terms:CPC (cost per click)CPL (cost per lead)CPA (cost per acquisition)CPS (cost per sale)Conversion rateHybrid deal

Further reading: the full guide on our blog