CPM
CPM means Cost per Thousand. (M is the Roman numeral for
thousand – and so Cost per thousand).
This is the amount you will pay the ad-network or website
publisher to show your ad a thousand times on their website or across their
ad-network.
Whether your ad is shown only once to each visitor
(Unique Impressions) or any number of times – is something that you will have
to work out with the website.
CPC
CPC means Cost per Click. This is how much you would pay
the ad-network or website every time a visitor clicks on your banner. It
depends on your product and your market – between other factors, the more
competition there is – the higher you will possibly end up paying as you
compete with participants.
CPA
CPA means Cost per Action. The Action could be any of the
following types of actions – A visitor clicking on your banner coming to your
site and filling up a simple enquiry form (CPR – Cost Per Registration) , or if
the visitor makes a purchase (CPS – Cost Per sale). It could be a flat fee or a
percentage commission of the sale made.
CTR
CTR is Click through Rate. This is the proportion rate at
which people click on your ad banner. If your banner ad is seen by 100 people
but clicked by one person – then its CTR is 1% or .01
Similarly, if your ad banner is seen 100,000 times and in
the same time period it is clicked 2000 times – then your banner CTR is 2% or .02.
This is how we calculate CTR …
(Number of Clicks / Number of impressions) x 100
Example, for above case it would be –
(2000 / 100,000) x 100 = .02
CPM, CPC or CPA …
which is best for my ad campaign?
Your choice will depend on various factors. Sometimes
companies such as Pepsi, would just like to enforce their brand and be seen
across many websites, without any need for the user to click on their banners.
This is a brand hammering strategy, and a CPM deal would be preferred.
Apart from the above mass branding effort, the decision
to go for a CPC, CPM or CPA ad becomes a calculated decision when you have a
product that you want to sell on your website.
Would you pay the publisher for only visitors he sends
you? Or would you pay him for every thousand ads he displays for you? Or would
you pay him a commission on sales from visitors he sends you?
This is tricky. You may need to read the paragraphs below
slowly, or even several times over to get the gist of what I am saying …
To help you decide, you should first run a pilot CPM
campaign that will help you gauge results. Your CPM campaign and number of
Clicks on your banner will let you know exactly what your CTR (Click through
Rate) is for your banner.
Your CTR will help you decide your campaign type – CPM or
CPC? If your CTR is high, you should go in for a CPM; if it’s low you should go
in for a CPC.
The reason for this is simple. If you have a low CTR then
you would rather only pay for the low traffic that comes to your site. If your
CTR is high, then you don’t mind paying CPM – because your cost will not
escalate for more and more visitors that come to your site, but will remain the
same.
I will explain the above, with a couple of examples –
Example 1
Let’s suppose a website that you want to advertise on
charges a CPM of $5.00 and a CPC of 50 cents.
And, you need to decide if you should go in for CPM or CPC?
Let’s suppose you first buy 1,000,000 impressions.
This works out to $5000 ($5 per 1000 impressions x 1000)
Now let’s suppose your CTR is not good and is 0.2 % (or 2
clicks per 1000 ads)
Now, you need to calculate the amount you will pay of you
had bought a CPC.
If your CTR is 0.2% and you display 1,000,000 ads, then
this works out to …
.002 x 1,000,000 = 2000 clicks.
So essentially you have paid $5000 for 2000 clicks or
$2.50 per click!!
This means that I am better of buying on a CPC basis,
because one click there costs me only 50cents! And if I go for CPC, then I will
get 10,000 clicks for $5000 … which is 5 times more than the clicks I get in
the CPM model (2000).
Example 2
Let’s assume that your banner ad turns out to be very
good and gets a very good CTR of say 5%
Now you need to decide...CPM or CPC.
Let’s analyze as above –
I paid $5000 for 1,000,000 ads at 5% CTR
That means 5% x 1,000,000 ads were clicked on, which
equals
= .05 (5%) x 1,000,000 = 50,000 clicks!
So for $5000 I got 50,000 clicks.
Now, if I had bought on a click basis, then at the CPC
rate of (50cents) I will pay
50,000 x $0.50 amount for 50,000 clicks, which is $25,000
(5 times what I would pay with CPM, for the same traffic)
So, I am better of buying with a CPM system for this
banner ad campaign.
