CPC, PPC, CPM, CPI, CPA, CPL: Which Online Ad Models Are Best?

Proportion

There are three main ways of pricing online media: CPC, CPM, and CPA. If you are a publisher or a marketer, it’s vital that you understand and consider all three.

What Is Cost-Per-Click (CPC) or Pay-Per-Click (PPC) Advertising?

CPC is a pricing model that charges the advertiser every time a user clicks on the ad. Users are not expected to complete the conversion, purchase a product or sign up for a newsletter. They simply have to click. Also referred as pay-per-click (PPC), it is a performance-based metric. In the CPC model, the payment is not merely based on the exposure of the ad but on the user interaction with that ad. By clicking on the ad, a user expresses an interest in a given offer; therefore, this pricing model may be viewed as a payment for targeted communication exposure.

Each advertiser is in control of setting the monthly budget and a maximum cost per click by keyword. CPC budgets range from $50 to $500,000-plus a month.

ADVANTAGES for the Advertiser DISADVANTAGES for the Advertiser
The ad receives exposure even without clicks.
There is immediate delivery of high-quality, targeted traffic to the website.
There is a measurable ROI. You instantly know what works and what not
You are in control of the budget.
There is a site-blocking filter list.
You can use specific keyword and specific region targeting.
There can be bidding wars.
It is very expensive and requires a moderate budget.
There is a high possibility of click fraud, fake clicks, and ghost traffic.
It can be blocked by savvy publishers.

 

ADVANTAGES for the Publisher DISADVANTAGES for the Publisher
You can attract more advertisers because ROI is more measurable.
You have the ability to collect more data about viewers and easily track click-through rates and engagement rates.
It is medium risk.
It requires a high click-through rate
Not all clicks count.
Revenues are less predictable because a publisher never knows how many people will decide to click on the ad.
It may take away visitors from your website.

How Much Does a Click Cost?

A click could range from 1 cent to double-digits. For example, Google AdWords charge on average $2.58 per click across all industries on the search network. For the display network, the average CPC is around $0.58. Some of the most expensive keywords in Bing and AdWords could reach up to $50 per click.

For publishers, the CPC depends on the quality of the website, click-through rate (CTR) of the website, coverage of the platform and relevance of the website to the offered promotional materials.

For advertisers, cost per click depends on the type of advertisement, positioning of the ad on the website, the sector or industry being advertised, and the amount of the booked advertising. For instance, clicks on banner ads are typically more expensive than clicks on text links. If the ad appears on the home page, the cost per click will be more expensive in comparison to the sub-page ad clicks. The financial sector is more competitive; therefore, CPC will be much higher.

What Is Cost-Per-Mille (CPM) or Cost-Per-Impression (CPI) Advertising?

CPM is a pricing model where the publisher charges a flat rate for 1,000 displays or impressions of an advertisement to the audience. That is why CPM is sometimes also called cost per thousand. The CPM model heavily relies on the number of times the ad was shown; it does not matter whether the user clicked on the ad or engaged with it. It is most suitable for display and branding-oriented campaigns. From the publisher’s perspective, CPM is the best choice because of the predictable revenue and measurable results.

CPM protocol typically gives a guaranteed number of impressions, and the cost will be based on that number. If the website has a CPM rate of $5 and guarantees 100,000 page impressions for the advertisement, the cost for the advertiser will be $500.

ADVANTAGES for the Advertiser DISADVANTAGES for the Advertiser
The lowest cost of advertising, it is ideal if you are on a budget and need predictable pricing.
It is easy to implement: Pay for 1,000 impressions, and forget.
If the ad generates a high click-through rate, CPM is a low-cost solution.
It is good when brand awareness is more important than performance.
There is usually a lot of inventory available.
You are still billed even if the ad may is shown to the same person multiple times.
If there is more than one ad per page, there is competition for the visitor’s attention.
It is a more quantitative benchmark rather than qualitative.
In isolation, it does not indicate acquisition.
There is a high risk of impression fraud.

 

ADVANTAGES for the Publisher DISADVANTAGES for the Publisher
Comparatively, it is low risk.
There are no concerns about CTR.
Viewership is verifiable and quantifiable.
There is a fixed price and predictable income stream.
It requires very high traffic.
You get low-paying ads.
If clicks were generated, they are not paid.

How Much Does an Impression Cost?

The cost-per-impression pricing model is popular for digital advertising due to its efficiency, verifiable distribution and the ability to target precisely. Factors that increase the average cost of CPM include geo-targeting, segment targeting, and type of display (static image, video, expandable, belt, marquee, pushdown). Apart from that, the actual amount of CPMs depends on placement of the advertising material.
According to Facebook, the average CPM in the U.S. for the first quarter of 2016 was $5.45. On LinkedIn, the CPM in the U.S. is around $13.05. The travel sector gets the highest CPM at $7.94, compared to the with gaming industry at $3.09. The average CPM rate in 2016 was around $4, which means $2.5 to $6 CPM is a relatively reasonable range for display ads.
For comparison, the average TV CPM ranges between $10 to $23 per thousand viewers. For The New York Times website, ads start at $8 CPM and increase by $2.50 for each additional layer of targeting.

What Is Cost-Per-Action, Cost-Per-Acquisition (CPA) or Cost-Per-Lead (CPL) Advertising?

With the cost-per-lead pricing model, advertisers pay when a user views an ad on the website, clicks that ad and then takes a further action. Therefore, a user becomes a qualified lead for a sale. Cost-per-lead takes the entire process a step further because a user has to complete an action on the advertiser’s site. Only then will the publisher receive payment. Advertisers may choose which specific action will be charged: download a PDF, sign up for a newsletter, become a member, watch a video, complete a survey, etc. This metric is defined when setting up each campaign.
The CPA pricing model is most commonly used in affiliate marketing.

ADVANTAGES for the Advertiser DISADVANTAGES for the Advertiser
All of the risk is shifted to the publisher.
You pay only for performance, so no action equals no payment.
The ad receives exposure even without clicks or actions.
It generates sales leads.
It is the highest cost of advertising.
It requires revealing of sensitive information.
It has the lowest conversion rate.
There is a high possibility of ad fraud (e.g. fake form filling).

 

ADVANTAGES for the Publisher DISADVANTAGES for the Publisher
It is much less predictable revenue.
You might be responsible for making the ad program successful and determining the successful time and the place of the ad.
There is higher revenue due to the high value to the advertiser.
Clicking on the ad redirects a user to the external page, leaving you unaware whether clicks have converted to a completed action or not. Hence, tracking can be problematic
Clicks are not paid.
You get free exposure of the ad even if no action is triggered.
Advertisers might design ads that don’t convert on purpose in order to get branding for free.
There might be cookie fraud, such as expiration of cookie or deletion of cookie, which means you don’t get paid.
It has the highest risk of fraudulent charges.

How Much Does an Action Cost?

The average cost per action on AdWords is $59.18 on the search network and $60.76 on the display network. The cost depends on the business model and industry. For example, CPA for the legal industry is $135.17, health and medical is $126.29, and employment services is $105.79 on the Google search.

So What Does This Mean for You?

CPC, CPM and CPA all have advantages and disadvantages. When choosing a pricing model, analyze your product and the target audience, then think what will work best for your campaign. You may also try to mix advertising models. Finally, use different models to know what fits better for you, and don’t be afraid to test.

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