CPA stands for cost per action and is a form of advertising where the company only pays a publisher when a certain action is carried out. This means that no matter how many people click through to their website, the company will only be paying out if a sale is made or a lead generated.
Unlike other forms of online advertising, CPA has a high conversion rate because the prospects are already open to the idea of making a purchase. This is because they have been actively pre-sold by the affiliates, who want their traffic to convert, as this is the only way they can earn money. It essentially puts the advertiser and the publisher on the same page, both working towards the same goal.
On the other hand, an advertising medium such as pay per click, or PPC, functions just like a regular newspaper classified advertisement. In other words, an advertisement is drafted and then published, and, depending on quality will help to drive traffic to an offer or sales page.
Unlike CPA, though, PPC traffic arrives cold and the likelihood of conversion is much lower. Another disadvantage is that every click has to be paid for, no matter if the prospect signs up, purchases or leaves.
CPA is preferred by advertisers for the simple reason that it gives better control over their bottom line. They know they will only be paying out if they have made a sale and thus their advertising costs are no longer indirect costs and part of their overhead, but variable costs linked to a sale. Essentially, the advertiser is placing all of the risk on the publisher and for this very reason; the commissions are much higher than with PPC models.