When placing an ad, you can choose from several ways of pricing; know the 3 most common and find out which one fits your company
Cost Per Click (CPC), Cost Per Thousand (CPM), and Cost Per Acquisition (CPA) are billing methods commonly used by online media platforms. CPC is calculated by the number of clicks on ads, CPM by impressions, and CPA by the number of conversions.
When you decide to advertise on the internet, you need to make a series of decisions to monetize your traffic. And just as digital ads can be analyzed in a way that was unfeasible in the days of traditional media, it is also possible to price them in different ways.
To make an ad, you must choose, among several available options, which pricing method applies to your reality. In this post, we’ll talk about the three most known: cost per click, cost per thousand and cost per acquisition, or CPC, CPM and CPA.
Understand the difference between these pricing methods and learn how to calculate each one!
What is Cost per Thousand – CPM
It sounds like a band name, but actually, CPM, or cost per thousand impressions, is a metric that represents the spend generated per thousand ad impressions. Of course, these are not impressions in the literal sense, but the number of times a certain advertisement was shown to the public on the internet.
When choosing CPM as a payment method, the advertiser agrees to pay the publisher of the ad a predetermined amount for every thousand impressions. This means that the publisher is compensated for each ad shown, giving more predictability of earnings.
However, to be viewed by a thousand people, the advertiser site must have a lot of traffic, so this type of campaign pricing is more used by news portals or well-known blogs.
CPM is used in branding campaigns , for example, which aim to increase brand awareness of a company or product. It is also a suitable strategy for medium and large companies that have a well-structured marketing area and a clear strategy.
Let’s say an advertiser is going to run a Google AdWords or Facebook Ads campaign under the following agreement:
- 10,000 medium rectangle ad impressions, dimension 300 x 250, with a CPM of $5
- 10,000 ad impressions in header format, 728 x 90 dimensions, with a CPM of $7
- The total cost of item 1 is 50 reais because:
- 5 = Cost/(10,000/1,000)
- Cost = 5 x 10
- Cost = BRL 50
Thus, the advertiser would spend R$120 on ads: R$5 for every thousand impressions of the average rectangle (totaling R$50) and R$7 for a thousand header impressions (totaling R$70).
One of the advantages of advertising using CPM is that you earn money for every ad people see, regardless of whether it generates clicks, leads or other actions. Every visitor who enters the site earns the publisher money.
If you choose CPM, keep in mind how long it will take your ad to reach 1,000 views on your chosen placement channel. The faster this happens, the more resources it will take for your campaign to stay on display. That’s why you typically use CPM when you’re more confident that the impacted audience will be the right audience.
What is Cost per Click – CPC
CPC stands for cost-per-click, a form of billing for paid ads in which payment is made by the number of clicks made. To calculate, just divide the total spent by the number of clicks received by the ad.
In other words, the advertiser pays for visitors who go from the site where the ad was made to his site.
This is the template used when purchasing Google AdWords keywords, for example. It’s a useful format for knowing the exact results of your ad. It is suitable for anyone who wants to get more traffic to their website or blog.
Since the budget is spent based on the number of clicks an ad receives, this type of pricing is better suited and easier to control, even for beginners. It also helps to understand the audience’s interest. So if you started advertising now, opt for CPC.
The formula to calculate CPC:
What is Cost per Acquisition – CPA
CPA means cost per acquisition. Of the three options we present in this post, it is the most expensive, as you will only pay when you reach the final objective of your campaign — whether it is the download of free material, a sale, among others.
It is an affiliation in which the publisher of the ad only profits when the action desired by the advertiser is carried out by the visitors. Thus, it is low risk for advertisers, as you only pay for transactions that performed what you wanted.
It is a more suitable format for those who already have large margin profits on their products, as the value of the ads can be more expensive, as the publisher only receives it when the desired action is completed.
What usually guarantees the Digital Marketing area to continue growing and receiving investment is precisely having a cost per acquisition that is profitable close to the average sale price of the products/services. Therefore, although it also depends on the sales team, it is an essential indicator for marketing.
To calculate CPA, use the following formula:
Let’s say you offer courses online and you’ve spent $1500 on ads, getting $50 enrollment. What is the cost per acquisition?
CPA = 1500/50
CPA = 30
Digital ads can be priced in different ways, according to your goals and how much you intend to invest.
But, whatever the choice, it is important to do tests to understand which format is best suited to your reality. Choosing channels where your persona or target audience also increases your chances of getting good results.
Once the announcements are made, take advantage of the data available to analyze the actions and prove to those involved the effectiveness of each one of them.