Digital Advertising

CPC

Cost per click, also known as pay per click, is a model of Internet advertising in which website owners drive traffic to the advertiser’s website and pay the website owner each time the link to the advertiser’s site is clicked. In other words, a website that uses CPCs would bill by the number of times a visitor clicks on a banner instead of by the number of impressions. When advertisers have a set daily budget, the ad can be removed from the website owner’s page for the day once the daily budget has been reached. This allows the advertiser to control spending. In search engine advertising, keyword phrases relevant to the target market are bid on. Content sites often charge a fixed rate rather than a bidding system

Purpose of CPC

CPC, cost per impression, and cost per order, are used to assess the cost effectiveness and profitability of Internet marketing. The advantage that CPC has over cost per impression is that it tells the advertiser how effective the advertising was. Clicks measure attention and interest, so if the desired outcome is to generate a click, then CPC is the desired metric.

How CPC is Calculated

The amount an advertiser pays for a click is usually determined through a bidding process. The formula used is often cost per impression (CPI) divided by percent click-through ratio (%CTR). Once the cost per click is established, you multiply the CPC rate by the total number of click-throughs. For example, if the CPC rate is $0.10 and there were 1,000 click-throughs, the bill would be $100 ($0.10 X 1000).

There are basically two primary models for determining CPC: flat-rate and bid-based. In both cases, the advertiser must consider the potential value of a click from a given source, which is done using the formula below. To determine the value of a click, you follow the basic formula of dividing the advertising cost by the number of clicks generated by an advertisement (or anticipated).

Cost-per-click ($) = Advertising cost ($) รท Ads clicked (#)

As with any other form of advertising, target is key, and factors that might play a role in the CPC campaign include the target’s interest, intent, location, and the day and time that they are browsing.

Comparison of CPC vs CPM

CPM, the oldest advertising pricing model, stands for cost-per-mile or cost-per-thousand and pays a set fee for every thousand impressions of the ad. In other words, for every thousand consumers that see your ad, you must pay a set rate. Then consumers would click the ad to get further information. CPM is going to ensure that you get a much higher volume of users who see your ad for the money spent However, the seeing of the ad doesn’t necessarily equate to action by the user, like the CPC does. The impression counts in CPM might not always be accurate, and therefore, the advertiser is paying for impressions that are not received. On the other hand, CPC rates are easily misrepresented. Therefore, there is no clear better option between these two models.

Controlling your CPC is significant to handling your marketing dollars. Observing CPC spending can help a business make decisions about its budget and its marketing strategy. If a marketer finds that their CPC is higher than what was budgeted, they can change their bidding strategy and target other keywords or they can adjust the content sites in which they market.

CPM

CPM, cost per mile, also called cost % or cost per thousand, refers to the cost for 1,000 viewers to see an ad. This measure is a very common method used to compare the cost of a variety of campaign ideas for the same product. This is a stark contrast to the many different types of performance-based models, whereby payment is triggered by an activity that is agreed upon by both parties. Radio, television, newspaper, magazine, out-of-home advertising, and online advertising can be purchased on the basis of showing the ad to one thousand viewers. It is used in marketing as a benchmarking metric to calculate the relative cost of an advertising campaign or an ad message in a given medium.

Calculating CPM

To calculate CPM, divide the cost of an advertising placement by the number of impressions (expressed in thousands) that it generates. Thus, CPM is the cost of the media campaign, relative to its success in generating impressions to see. This measure can be used to determine the efficiency and overall costs of advertising campaigns or media. The CPM metric is used to compare costs of advertising campaigns across and within different media. Because impression numbers tend to be very high, CPM is an easy number to work with, since you are dividing by 1,000.

In online advertising, if a banner ad costs $20 CPM, this means that it costs $20 to show the banner on 1000 page views. There are many factors that go into the actual cost of a CPM. For example, the Super Bowl is the most expensive per-spot ad in the United States, so it might seem like an overpriced option for advertising. However, considering the fact that the Super Bowl is the most watched television event annually, the actual CPM is likely comparable to less expensive airing spots. In other words, the total number of viewers is so significantly higher during the Super Bowl that the cost to advertise during this event is likely to be very near what the CPM would be in a less popular TV event.

CPM Bidding

CPM bidding means that you pay based on the number of times that your ad is shown, often used in Google Display Network. When you bid, you are telling Google or any other search engine network what you are willing to pay for every thousand impressions. If your emphasis is on brand awareness, CPM is likely your best option, as you will get the exposure. However, if your goal is sales or website traffic, using a CPC bidding model (pay for each click on your ad) might be a better option. When placing a bid, you indicate the maximum amount that you are willing to pay for 1,000 views of your ad.

Comparison of CPC vs CPM

With CPM, the oldest advertising pricing model, consumers click the ad to get further information. CPM is going to ensure that you get a much higher volume of users who see your ad for the money spent than with CPC. However, the seeing of the ad doesn’t necessarily equate to action by the user, like the CPC does. The impression counts in CPM might not always be accurate, and therefore, the advertiser is paying for impressions that are not received. On the other hand, CPC rates are easily fraudulent. Therefore, there is no clear better option between these two models.

CPM is a great way to determine the best method for an ad campaign. Run the campaign in multiple formats for a brief time period, calculate the CPM for each, and then determine whichis the most effective strategy.