On Thursday 2/10/11 I received an e-mail from our account rep @ Nextag informing me that they are opening a Cost Per Acquisition CPA model way to list products on Nextag.com i.e. a “marketplace” account.
If you are unfamiliar with what a “marketplace” account is or how it differs from a normal account, let me try to explain…
An example of a popular marketplace is www.amazon.com.
On Amazon.com via a Seller Central account, you can upload and maintain a product catalog. You will also upload inventory directly into the account. Your listings will appear on www.amazon.com and shoppers will be able to purchase the item directly on Amazon.com. When a sale is made, a predetermined percentage of the sale is withheld by Amazon (that’s where you get the Cost Per Acquisition). You then will fulfill the order as normal. This is how most marketplace accounts function.
Amazon also offers a Cost Per Click model to submit your products called Amazon Product Ads. When you use this type of an account to submit your listings, they will appear on www.amazon.com along with listings submitted via the Cost Per Acquisition Seller Center account. With Amazon Product Ads, you submit your data feed to an FTP location and there is no need to manage you inventory via the merchant account, you do so through the data feed. When someone clicks on your Amazon Product Ads listing they will be redirected to the item on your web site where they can make the purchase.
So now that we have a better understanding of what a market place account is, what does this mean for nextag?
Well, to do a side by side comparison, Nextag‘s current submission format is just like Amazon products ads (and basically all of the other Comparison Shopping Engines (CSE)). The new marketplace side of Nextag will allow you to list your products like a Seller Central account from Amazon.
Which is better?
This is a very good and debatable question. The model we use to decide is very heavily dependent on the merchant’s profit margin. When you sign up for a merchant place account, they are going to let you know what the Cost Per Acquisition (CPA) is for the categories to which you will be submitting your products. If you use a Cost Per Acquisiton model to judge your profitability, then you can compare them and possibly rule out the this form of submission.
An Example:
Lets say that you use a Cost Per Acquisition metric of 10% to judge your profitability (i.e. if you spend less than 10% of your average order value on marketing costs then the order was profitable).
Now lets say that when signing up for the Nextag marketplace you find out that your Cost Per Acquisition for the category to which you’ll submit is 20%.
Right off the bat you know that this is something that may not work out for you because you know up front that you will be paying 10% more per order than you have deemed profitable.
This can also work the other way for identifying if this method would be profitable for you. Using the same 10% metric and you find out that your category has a 5% Cost Per Acquisition rate, you know that you’ll be making your goal and then some.
The biggest benefit that the Cost Per Acquisition model truly has is that it offers a static metric versus the Cost Per Click model.
However, the Cost Per Click model has more of a dynamic metric for performance. When you pay a Cost Per Click you may receive a sale from a single click that cost you anywhere from $0.10 – $1.00. You may also get 50 clicks on an item paying $5.00 – $50.00 and not get a sale. You also have the ability to modify your cost per click depending on the Comparison Shopping Engine. Some let you up-bid to better compete with rival sellers and some even let you down-bid to reduce costs when needed. The Cost Per Click model offers the ability to be more profitable but is unpredictable. If you monitor your performance closely and proactively manage your bids, you can remove the losers, promote the winners & help increase your bottom line.
If you think that the CPC method might be right for you but aren’t sure that you have the time or knowledge to effectively manage the campaigns on your own, don’t be disheartened. There are a lot of companies out there who specialize in this type of marketing. Feel free to contact me for some recommendations.
To Review:
If the CPA for your category is profitable and/or you don’t have room in your marketing budget for loss and/or you don’t have the time to effectively manage your CPC feeds & bids then the CPA model might be better for you.
If the CPA for your category isn’t profitable and/or you do have room in your marketing budget for loss and/or you do have the time to effectively manage your CPC feeds & bids then the CPC model might be better for you.
So to answer the question on which is better what it really comes down to is:
1. Is the CPA for your category profitable?
2. What is your risk level for your marketing budget?
3. Do you have the time to closely monitor and optimize your CPC feeds or hire someone to do so?
If you have any questions about my long winded wall of text or if I can help to clear up some further questions for you, please feel free to e-mail me.
And without further adieu the e-mail from Nextag:
Hi,I would like to introduce you to a new program launched by Nextag that will allow you to sell your products through our Stores program on a rev share/CPA basis instead of having to prepay a CPC for your traffic.
You can also run a hybrid program – you can drive quality NexTag traffic to your products through the CPC platform, and also sell incremental skus with us on a rev share basis through the Stores program, or just do whichever one program you prefer.
The highlights of this new program include:
- Largest CSE on the web with over 26,000,000 unique monthly visitors
- Increased conversion with a seamless, more personalized buying experience
- Nextag accepts orders on your behalf, and covers all credit card processing fees
- We take full, 100% responsibility for consumer fraud
- Free mobile optimized checkout available to drive even more sales
Please contact me if you are interested in increasing your sales through our new Nextag Stores program and I will send you an application.
Have a wonderful and hopefully profitable weekend!!!!
CSE.Manager@gmail.com
