The traditional model for pricing advertising is to pay for reach or impressions. On television, in magazines and newspapers, and on the radio, advertisers pay a certain rate based on the estimated number of people who will view or hear that spot. This has transferred over to the digital realm into a slightly more sophisticated setup. Cost per 1,000 impression (CPM) marketing online guarantees a certain number of impressions for the marketer, purchased in groups of 1,000. However, this is not without issues, suggesting that a different pricing model should be the standard.
One of the biggest problems with CPM is that it is challenging to verify that you are getting what you pay for. When a marketer purchases a unit of impressions, they are paying for a specific format, audience, placement, and context. While the format is fairly easy to check, the rest is mostly purchased on trust. This is a problem because as much as 30% of display ad impressions are not actually viewed by the user. This is especially true for ads with low placement on the page. While it is possible to purchase higher-end ad placement on reputable websites, this is typically very competitive and cab become expensive quickly.
Another potential pitfall of CPM is that it is hard to know what the right per-user cap is. After a few views of the same ad, the drop off in effectiveness is substantial. However, identifying where that line stands is challenging. This difficulty is compounded by the fact that it varies from viewer to viewer.
Finally, it can be difficult to attribute returns to campaigns. Without any direct correlation between impressions and conversions, it is quite difficult to know which ads are working well and which aren’t. It is even difficult to determine the overall return on investment for the campaign as a whole. These difficulties can make CPM a potentially inefficient marketing structure.
With cost per click campaigns, marketers only pay when their advertisement is clicked. Thus, the issues of quality verification, display cap, and ROI are all circumvented. Poor placement in particular becomes less significant because should this happen it is unlikely that the user will click through, meaning that no payment will be made. As such, there is no wastage. However, publishers are still receiving appropriate compensation because prominently displayed advertisements will generate more clicks and thus more revenue.
Furthermore, it is no longer relevant how many times an ad is displayed to a single unique viewer because each of those impressions is not paid. Despite this, the advertiser is still gaining the benefit of multiple impressions without having to pay individually for each. Finally, it is also substantially easier to track return on investment. With metrics directly tied to actions such as clicking on an ad, there can be no doubt that each unit paid for is accomplishing the intended goal.
While CPM and CPC are both valid forms of digital marketing and are often best used together, CPC does address many of the issues that CPM campaigns suffer from. So if you are considering a new digital campaign, be sure to buy some ad space based on cost per click as well as per impression.