Both publishers and advertisers want to settle on the best pricing model, before starting a campaign. In this piece, we’ve compared CPM vs CPC vs CPA vs CPL vs CPI so that you can pick the right model for your websites.
Publishers who have successfully gained a considerable amount of traffic on their websites would start thinking about ways to monetize their web traffic.
They start to get some Requests for proposals (RFP) from some potential advertisers or plan to dive into programmatic advertising. Whatever it is, the crucial step that the Publisher needs to take is choosing the Advertisement model or pricing Method that will be used by them to charge the advertisers.
But, it is not. Digital Ad displays are way different from traditional advertisements and hence they are priced in a different manner. Technology enables the advertisers to track the number of times their ads were clicked and the action following the ad click. This way advertisers can compensate the publishers based on varied criteria.
Basically, there are 5 ways in which digital advertisements are traded.
- Cost Per Thousand (CPM)
- Cost Per Click (CPC)
- Cost Per Action (CPA)
- Cost Per Lead (CPL)
- Cost Per Impression (CPI)
We’ll look at the detailed breakdown of CPM Vs CPC Vs CPA Vs CPL Vs CPI.
Cost Per Thousand (CPM)
In CPM Ad Model (also called cost per mille), the advertiser pays the publisher a specific amount of money for every 1000 ad impressions. This means the publisher gets paid every thousand times, the ad is shown on the website.
- The ad revenue generated by CPM is more predictable as the publishers have a fair knowledge of their average page views per month.
- By the CPM model, the advertisement reaches a wider set of audiences as compared to other models. Thus, those advertisers who focus on brand awareness (in other terms, the majority of new advertisers) go with the publishers offering this Ad model.
- CPM model offers simplicity to publishers. The end goal is to deliver the impressions that both parties have agreed upon. No additional tracking requirements.
- Extensive media ads need to be offered by publishers like pop-ups, videos, and interactive games so that advertisers can gain some value out of the impressions.
- CPM doesn’t always make the most money. For example, if your site’s visitors are targeted towards a niche, then click the model will earn you more profit.
If your website offers a large volume of viewer traffic and if your advertisers focus more on the exposure of its brand rather than direct instant sales, then the CPM model will be the best option for your website.
Cost per Click (CPC)
CPC is one of the Performance-based online advertisement models. In this model, the publisher gets paid for every click that the advertisement receives. For tracking the click counts and accidental clicks or abuses, Ad software can be used.
- CPC model offers more returns to the advertisers hence many advertisers prefer the CPC model.
- CPC offers publishers to collect more interactive data that can be used to sell ad inventories. Publishers can track the average click-through rates by dividing the number of clicks on ads by the total number of website impressions.
- Revenue generated by CPC is less predictable than CPM because the number of clicks received by the ads cannot be predicted.
- Clicking on ads distracts your webpage visitors and moves them away from your website. Still, you want them to click on it as it is your revenue source.
If the advertiser is more concerned about getting an immediate response from your website visitors, then you may choose the CPC ad model for your website. Also, it is worth considering your audience. Without a targeted audience, the ads won’t be effective enough to drive clicks which, in turn, drops your revenue.
Cost per Lead (CPL), Cost Per Acquisition (CPA), Cost per Impression (CPI)
With the Cost Per Lead (CPL) model, the advertiser pays the publisher when the viewer looks at the advertisement, clicks it, and then takes a further step in becoming a qualified sales lead. This further step may mean signing up for the reward program, e-newsletter, website membership, or others.
CPA (also called Cost per action) is a similar model but it compensates the publisher only if the ad viewer completes its sales like purchasing the product.
Cost per Install (CPI) is an ad model utilized by mobile app advertisers. In this model, the publisher gets paid only if the viewer installs the advertisers’ app.
- CPL, CPA, and CPI give back the advertisers what they are paying for thus narrowing their risks. Hence, these models are easier to sell to the advertisers as compared to CPM or CPC.
- Effective creation of CPL, CPA, or CPI ad program needs a good investment of time and resources by the advertiser as well as publishers. Thus, it leads to the bonding of the advertiser to the publisher for a much longer time.
- This model offers better revenue to publishers (about $3-$10 per action).
- Revenue cannot be predicted.
- A large amount of time and skill is needed by the publisher for making this program successful. The publisher may even require to frequently manage the campaigns and optimize them for better results.
If you want your publication to be involved with a limited number of advertisers giving you greater compensation, then you may opt for these models.
The suitability of each pricing method ultimately depends on the sites, its audience, and the goal of the ad campaign. There are advantages as well as disadvantages of each ad pricing model. A publisher generally prefers a more predictable ad monetization model which is CPM but this model may not yield the best revenue.
The suitability of one ad pricing model for a site may not be the same for another site too. Major search engines and websites reaching the higher set of audiences like Google, Bing, or Facebook prefer the CPC model while the content-based websites prefer the CPM model.
If you are new to display advertising, the best bet for you will be trying all the models with different campaigns and check your audience’s response to various models. This way, you can find out the most suitable ad monetization model for your website. You can also construct a table for ‘CPM vs CPC vs CPA vs CPL vs CPI’ and note down the revenue and profit made over a certain (fixed) time period to easily discern between the models.