When measuring the success of an ad campaign, you might be tempted to look at actions first. They’re obvious indicators of how well your content performs. However, less-specific pricing models like cost-per-click (CPC) and cost-per-mille (CPM) can also give you a clear picture of how your ads are performing and whether they’re worth the cost.
If you want to move customers through the sales funnel from top to bottom, you’ll need to master these three pricing models. We’re here to help you understand the differences.
At their core, pricing models gauge the advertiser’s cost and publisher’s revenue for a campaign’s specific objective. These models are typically categorized by performance (CPA, CLP, CPC, etc.) and viewability (CPM, CPV).
Both buy-side and sell-side participants want to choose an advantageous pricing model, but the right model may differ for each.
For the advertiser, CPC is useful for brand awareness and visibility objectives. CPM works better for campaigns focused on reach and impressions, while cost per action (CPA) is useful for conversions or leads.
While CPA rates are generally more stable than CPC and CPM, they can still fluctuate based on competition and ad quality. High competition can lead to increased costs for acquiring new customers, while periods of low competition may present opportunities for lower acquisition costs.
When advertisers use the cost-per-click (CPC) model, they pay a set sum of money each time someone clicks on their ad. This performance-based model is typically used for campaigns that are focused on generating leads or driving sales.
The cost an advertiser pays each time someone clicks their ad is determined by competition, ad quality and relevance, target audience, and bidding strategy.
The advantages of using CPC include:
Advertising with a CPC pricing model is useful for measurability, but it leaves brands vulnerable to a few risks:
CPC is helpful for the middle of the marketing funnel, where users are ready to convert but need an extra nudge. It’s ideal for campaigns focused on brand awareness, visibility, and lead generation.
CPC is also useful for smaller budgets since it’s possible to set daily spending limits. Affiliate marketing, sponsored social media posts, and ad campaigns that need exposure to a specific audience are all good cases for CPC.
CPM refers to the cost per one thousand ad impressions. The CPM pricing model is used for display and video ads, where advertisers pay each time their creative is shown to a user.
The cost per thousand views varies depending on audience targeting, geographic location, seasonality, and competition among other advertisers.
CPM offers many opportunities for video marketers and display advertisers, including:
CPM poses a few potential problems for advertisers:
CPM is helpful for brands launching a new product or running an awareness campaign on Facebook. It also works well for enterprise brands and major retailers that care less about audience targeting and more about broad coverage.
Ads using the CPA pricing model are only charged when users complete a specific action. This could be anything from making a purchase to signing up for an email list or downloading an app.
The two factors that directly impact CPA are CPC and conversion rate. On a granular level, brands can use their average order value (AOV) and customer lifetime value (CLV) to determine an appropriate CPA for their campaign.
CPA offers an effective opportunity for brands that expect immediate conversions. Benefits include:
Publishers aren’t as fond of CPA campaigns, as the model requires substantial optimization and doesn’t generate guaranteed revenue. Potential issues include:
CPA suits advertisers focused on achieving specific goals or conversions, such as sales, sign-ups, or app downloads. When brands can motivate ad viewers to take immediate action, the ROI of a CPA campaign can be significant and immediate.
The ad campaign metric you choose for your business depends on your marketing objectives, target audience, and available budget. Let’s dive deeper into specific examples of when to use CPC, CPM, and CPA.
CPC is the way to go if you want to get more from your advertising budget.
Since payment is based on clicks, brands only pay when users interact with their ads and are directed to a specific destination.
CPC works well for:
If your main goal is to reach as many customers as possible while staying within a limited budget, CPM is likely a wise bet.
Since purchases and actions aren’t tracked, the actual ROI from CPM is obscured unless you dedicate resources to measuring it.
Situations where CPM works well include:
Since CPA campaigns require conversion optimization, brands running them need to know exactly which conversions to measure and how to quantify them ahead of time.
If an organization can’t attribute the exact value of a particular action, CPA campaigns aren’t the most likely choice.
Here are a few examples of scenarios where CPA is appropriate:
MuteSix accelerates growth for disruptor brands through real-time marketing that solves for market, brand, and customer brand needs.
Leveraging data-backed, omnichannel media buying, growth marketing, and creative strategies, our team of forward-thinking experts scale brands to success faster and more efficiently than any agency can — and we can help you get the best rates on ads.
Metrics can change due to reasons outside of our control, like heightened competition, economic headwinds, and heavy promotional periods. Still, MuteSix is prepared to face these challenges head-on using real-time, data-backed buying.
MuteSix helps by handling time-consuming tasks like adjusting and monitoring campaigns, introducing brands to the best advertising practices and new capabilities within their chosen platforms, and reaching high-intent audiences.
If you’re looking for a cost-effective approach to test a few ads before launching a big campaign, try CPC. CPM is the way to go if you need to maximize your reach without blowing your budget. If you have the resources and know-how to measure conversions accurately and track the ROI from each action, CPA may be the route you choose.
No matter which model you choose, MuteSix will use its extensive experience, A/B testing philosophy, and real-time digital marketing to ensure you get more out of it.
Ready to grow your brand? Reach out today for a marketing consultation to see if you qualify for a free omnichannel audit.
Sources:
Cost Per Thousand (CPM) Definition and Its Role in Marketing | Investopedia