We get a lot of people asking questions about the benefits of CPM, CPC, and CPA campaigns, and whilst all of them are defined in our glossary, this should explain the benefits and pitfalls of each from an advertiser’s perspective.
CPM (Cost Per Thousand Impressions)
Advertisers pay publishers for every thousand impressions of their ad displayed, no matter is users click on the ads or whether they sign up or buy something from the advertiser’s website. Advertisers therefore maintain all of the return on investment (ROI) risk with a CPM campaign, and can often reduce the CPMs of the campaigns accordingly.
Advertisers must work out how much they are willing to pay per lead (CPL) or sale (CPS), and the ratio of impressions per lead or sale, and then set the CPM price accordingly. If the campaign is for branding purposes, however, and the advertiser is not attempting to convert users, simply gain eyeballs, then competitive rates should be used.
CPC (Cost Per Click)
Advertisers pay publishers for each click on an advertisement, no matter if that user is then converted into a sale or sign up. With CPC advertisements, some of the ROI risk is passed to the publisher as it becomes in the publisher’s best interest to promote the advertisement to get a good click through ratio (CTR). Due to this distribution of risk, if the publisher is successful in promoting the campaign then the resulting eCPM may be increased, but as long as the conversion ratio from click through to sign up or sale remains the same then the advertiser’s cost per lead can remain the same or even be reduced as they are not paying for wasted impressions.
Advertisers must work out how much they are willing to pay per lead (CPL) or sale (CPS), and the ratio of clicks per lead or sale, and then set the CPC price accordingly. Do note that click fraud is a major risk with CPC campaigns, however, as if an advertiser pays $0.25 per click – it does not take many clicks for the costs to add up with no leads being created. It is important to check for such problems and ensure there are protections in place when running a CPC campaigns, all of which are offered by most reputable networks.
CPA (Cost Per Action)
Advertisers only pay for each lead (CPL) or sale (CPS) that is made by a user coming from a publisher’s website. I a CPA campaign, almost all of the ROI risk is passed from the advertiser to the publisher, as to get paid the publisher must promote the advertisement and get those users that click the ad to convert.
The advertiser must decide how much they are willing to spend on each new user or for each sale, and set the CPA price accordingly. Also, they must make sure that the landing pages they set up for the campaigns are successful in funnelling users to conversion, as publishers choose which campaigns to promote by the eCPMs they expect to receive for the campaign, and for a CPA campaign to be successful, advertises need to attract many good quality publishers.
If you would like to read a similar primer from a publisher’s perspective, then read our CPM, CPC, and CPA Primer for Publishers.