Unlike advertising in traditional media in which the cost of an ad depends on the size, color and page it is included in, online advertising offers varied cost models tailored to the needs of each campaign.
In addition, a display ad is not the same, more similar in most cases to traditional advertising, than an ad in Coinverti or in any of the ad networks that allow brands to display ads to millionaire audiences upon payment of the established rate.
In this post, we show you the differences between CPM, CPC, and CPA. Costs that vary depending on:
- The impressions of each advertisement that are shown to the visitors of the different web spaces.
- The clicks made on the links in the ads.
- Other types of actions that are identified as conversions.
In summary, all these indicators can be grouped around 3 fundamental metrics:
It is the most basic metric. Part of the number of users that visualize your ad, amount that establishes the necessary investment. And it is usually expressed in thousands. Which means that the cost is calculated according to every thousand impressions. This metric is usually the most numerous.
Why work with CPM?
When creating this type of campaign, our goal is to obtain visibility, so the price is calculated based on 1,000 impressions. Depending on the keywords you use to attract the target audience of your ad, the cost can vary a lot, as when there are too many brands competing for the same space, we will need to pay more to display our banner.
Imagine that you are creating an ad with “cheap” keywords to set the target for your campaign. If you pay $ 1 per 1000 impressions and set a budget of $ 10 for your campaign, your banner will be displayed 10000 times, for users who are at least interested in your ad.
For just $ 10, you will have advertised for 10,000 potential customers.
But you will have paid this price not for clicks or conversions, only for your ad to be displayed on a site. That is why this method is recommended for branding, but it is not the option used by most brands since it is almost impossible to predict and guarantee the return of your investment. We can make money from a CPM campaign, but the ROI of these ads will always vary.
Brands that work with CPM are paying for exposure to a product or a brand, the primary focus of these campaigns is not a direct conversion.
Using the previous example, if you paid $ 10 to display your banner for 10000 visitors, most likely you will get a few clicks, some of these visitors will access your site through the conversion process to sign up, to fill out a form, to buy one of your products.
For CPM campaigns, ROI (return on investment), is not the most critical factor, although its low cost can make the difference in the final result. Depending on the value of what we’re announcing, with only a few conversions we could recover the money we have invested and even make some money.
When you start an ad campaign using CPM, what you are looking for is to give your brand visibility to ads that will be displayed to a large number of people.
The cost per thousand views is the basis of calculation. We can create campaigns with a large budget or limit the amount of money we want to spend each day.
Both options may be attractive, but if you have a very low budget, it is better to distribute your investment over several days to test the effectiveness of your campaign because if you spend your budget in a short time, you will not have time to make the necessary adjustments to your paid ad.
It is, perhaps, the fundamental metric. This is the number of times a link is clicked. Whether in a banner or native ads, a good click rate is often synonymous with success. Whenever this traffic is directed to the appropriate spaces.
Why work with CPC?
In this case, we are not paying for branding, but rather for attracting visitors, users who will access the destination URL. This URL can be a landing page, an article on our blog, an online store or any other page we want to promote.
This type of ad may be more expensive, but the traffic generated will be much more targeted:
On most ad platforms, you can set a maximum limit for your campaign, no matter what format you choose. Continuing with the previous example, if you define a $ 10 limit for your ad, you’ll spend only this amount, but the difference is that in this case, you would be reaching fewer people.
It all depends on the value of the keywords you select when creating your ad. If the competition for the keywords you want to rank is very high, you could spend a considerable amount of money for each click. That way, you could pay $ 0.01 per click while another advertiser who is working with different keywords could have to pay $ 2 for just a few clicks.
The success of this type of campaign comes from the subsequent action of your visitors. If they access your site and end up buying your products, having to pay $ 2 per click may be worth it as you will be earning a lot more money from the product you sold.
Before you start creating this type of campaign, you have to choose the best keywords and create a structured and optimized landing page to increase your conversion rate, which can be: A purchase, a subscription, or any other action.
Nowadays, there are professional CPC experts who can get excellent results with little investment. This means that these campaigns can be profitable for everyone because although their cost may vary, their conversion rates are much higher than in CPM campaigns.
A conversion can be any type of action that a brand decides that is the one that interests them:
- Collecting visitors data
The most logical thing is that, in the conversion funnel, this metric is the one with the least number. However, it is the most important.
How does CPA work?
We can also calculate the CPA for each strategy used to promote our site: SEM or Google AdWords, SEO, banners in blog content, email marketing, etc.
It is very easy to calculate the CPA in an online marketing campaign because mathematically the algorithm can be easily understood: Just divide the total cost of the ad by the number of conversions.
This type of advertisement is by far the most expensive. However, it is very efficient, and the investment is easily recovered when the campaign is created correctly.
Advertising may be your solution of choice for a boost in sales, an awareness growth, a new branding, rebranding or other important marketing decisions. However, it comes with a price. Advertising is costly not only in financial terms but also time-consuming. You need to keep track of everything that happens in your industry and the advertising industry as well, to learn as you go, to implement new strategies based on your results and so on.
It’s important however to also start on the right foot and in order to do it, you need to master the main concepts of the digital advertising phenomenon. It is important to know how you can calculate results, how much you pay and what are you paying for, how to avoid fraud etc. This article provided you with some of these basic concepts and hopefully, it will help you get better at what you are doing and improve your overall ROIs.