Exploring Various Pricing Models for Display Ads

Exploring Various Pricing Models for Display Ads

Display ads are a powerful tool in the marketer’s belt. They offer the ability to engage viewers with rich media within the content they are browsing, often leading to a higher conversion ratio. As such, they should be included in almost every digital marketing campaign. However, there are a number of options for how to go about doing so. In particular the pricing models for these, and almost all other digital advertisements, can very significantly. The most common options are: cost per thousand impressions (CPM), cost per click (CPC), cost per lead (CPL), and cost per acquisition (CPA).

Cost Per Thousand Impressions

The most traditional model for paying for advertising is for the number of impressions. While in conventional media this is an estimate based on the programming’s audience, online this is a specific measure. Typically impressions are purchased on units of 1,000. Per unit, CPM is relatively inexpensive compared to other models. Furthermore, because there is only a low correlation between performance and cost, it has the greatest potential of all of the pricing models. However, it also has the lowest guarantee of positive results.

Cost Per Click

Cost per click, also often called pay per click (PPC), is one of the most popular forms of performance based digital marketing. In this arrangement, the marketer pays content publishers for every click of an advertisement that they are showing to viewers. This is significantly more expensive than the cost for an impression – though around the same cost as a unit of 1,000 impressions – because it guarantees that the browser has some interest in the advertiser’s content. However, a click does not necessarily mean a conversion. As such, a poorly optimized CPC campaign can become quite costly.

Cost Per Lead

When cost per lead is used as the basis for a marketing campaign, marketers pay for leads such as form submissions or inbound phone calls. This arrangement is relatively expensive compared to CPC and CPM; however, it offers significantly more engaged leads. Consequently, CPL tends to have a fairly high conversion ratio. The unit price for a lead can range greatly from a few dollars to over a hundred (or more) depending on how qualified the lead is. CPL campaigns can be highly effective provided that the marketer invests time into finding the right combination of targeting and cost to maximize returns.

Cost Per Acquisition

Finally, the most reliable and, typically, the most expensive form of digital marketing is CPA. In this setup, the marketer pays content publishers whenever they convert a new sale. Typically CPA is tracked both by last touch – the last publisher to display an ad to a shopper before a purchase, within a certain window – and by click through. While CPA guarantees that the marketer will be generating a sale for every expenditure, the potential of a CPA campaign is directly confined by the budget.

Each of these methods of digital market has its merits for display advertising. Different companies will benefit more from different models. Try running a campaign with each payment structure and seeing what works best for your situation. Remember, many of the best strategies combine multiple channels and structures. Not matter what you decide is best for you, be sure to test new ads and ideas before going to full scale, this will help to optimize spending as much as possible.