While entering the world of performance marketing, you are likely to get overwhelmed by tons of different short and unfamiliar words. The most important things to learn at the beginning are pricing models for your campaigns and metrics that transform them into insights. We have created this dictionary for you, so that you can save it and whenever you are suspicious, you can come back in comments.
What is CPM?
(CPM – Cost Per Mille)
The most basic tool is CPM, per thousand impressions, or one thousand times published ads on the website and how much it costs the user to see. CPM is used by advertisers to show their pricing to publishers. This allows you to compare different offers. Ad Networks, such as AdSense, calculate ad revenue for websites based on CPM.
- CPM = the cost of showing your ad 1000 times
How to calculate the CPM?
CPM = Total spending / Number of impressions
What is CTR?
(CTR – Click Through Rate)
CTR is calculated on percentage basis. Let me explain you it in more details. Suppose you have put one ads on your blog and it appears to your visitor 100 times a day and 3 people click on it then your CTR will be 3% or 0.03
If 10 people out of 10000 impression of ads are clicking on ads then your CTR will be 0.1% or 0.001
How to calculate the CTR?
So if number of impression is 100000 and number of click is 1000 then CTR will be
CTR = (1000/100000) * 100 = 1%
What is CPA?
(CPA – Cost per Action)
Advertising is performance based and is common in the affiliate marketing sector of the business. In this payment scheme, 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.
What is CPC?
(CPC – Cost per Click)
This is currently the most common method, the product owner pays the website or host every time someone clicks on an advertisement banner. The cost per click is defined according to keywords and success rate. A keyword is used for a search, its rate is assessed according to its success.
For example, the keyword «real estate» will be more expensive than «opossum.»
How to calculate the CPC?
CPC = Total spending / Number of clicks
CPM, CPA or CPC … which is best for ads campaign?
Your choice will depend on various factors. Occasionally companies like Pepsi prefer to implement their brands and can be viewed on many websites, without any need a user needs to click on their banner. This is a brand hammering strategy, and CPM deals will be preferred.
In addition to the above branding effort above, the decision to go for CPC, CPM or CPA advertising becomes a calculated decision when you have a product that you want to sell on your website.
Will you pay the publisher only for the visitors you sent? Or will you pay it for every thousand ads you display? Or will you pay commission on the sale of visitors you send it to?
It is difficult, but it is difficult. You may need to gradually read the paragraphs below, or at times to get the essence of what I am saying …
To help you make a decision, you should first run a pilot CPM campaign that will help you get results. The number of clicks on your CPM campaign and your banner will tell you what your CTR (click through rate) is for your banner.
Your CTR will help you determine your campaign type – CPM or CPC? If your CTR is high, then you should go for CPM, if less you should go for CPC.
The reason for this is simple. If you have fewer CTRs, then you will pay only for low traffic to your site. If you have a high CTR, then you do not mind paying for CPM – because your costs will not increase for the maximum number of visitors coming to your site, but that will be the same.
I will explain the above, with a couple of examples –
Lets 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 ?
Lets suppose you first buy 1,000,000 impressions.
This works out to $5000 ($5 per 1000 impressions x 1000)
Now lets 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).
Lets 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.
Lets 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.