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What is CPM, CPC, CPA and CTR?

cpm

CPM stands for Cost Per Thousand. (M is the Roman numeral for thousand – and therefore Cost per Thousand).

This is the amount you will pay to the ad network or website publisher to show your ad 1,000 times on your website or on their ad network.

If your ad is shown to each visitor only once (Unique Impressions) or any number of times, it is something you will have to resolve with the nad network or website.

CPM rates once (before the 2000 bubble burst era) were as low as $75, but are now as low as $1 CPM.

cpc

CPC stands for cost per click. This is the amount you would pay to the ad network or website each time a visitor clicks on your banner. CPC rates can be as high as $3 per click or as low as 5 cents per click. It depends on your product and your market; Among other factors, the more competition there is, the more likely you’ll end up paying while competing with your competitors.

CPAs

CPA stands for cost per action. The action can be any of the following types of actions: a visitor who clicks on your banner, enters your site, and fills out a simple inquiry form (CPR: cost per record), or if the visitor makes a purchase (CPS: cost per sale). ). It can be a flat rate or a percentage commission of the sale made. Affiliate networks like commissionjunction, linkshare and clickbank have very good software systems to keep track of all this and provide statistics to online merchants and publishers on their network of websites.

I have explained in detail what an Affiliate Network is, in another section. Basically, they allow publisher websites to sign up for free so they can start earning commissions on sales that come from the traffic they send to online merchants. Affiliate Network keeps track of all of this using their system and the code merchants and publishers must place on their website. Publishers can sign up mostly free of charge and in some cases online merchants have to pay a one time setup fee and possibly a monthly fee with commissions e.g. As in the union of the commission. A very popular site that is free for merchants is the Clickbank network.

CTR

CTR is the click rate. This is the percentage rate at which people click on your banner ad. If 100 people see your banner ad, but one person clicks on it, then your CTR is 1% or .01

Similarly, if your banner ad is viewed 100,000 times and in the same time frame is clicked 2,000 times, then your banner ad CTR is 2% or 0.02 .

This is how we calculate the CTR…

(Number of clicks / Number of impressions) x 100

Example, for the previous case it would be:

(2000 / 100,000) x 100 = .02

CPM, CPC or CPA… which is better for my advertising campaign?

Your choice will depend on several factors. Sometimes companies like Pepsi simply want to assert their brand and be seen on many websites, without requiring the user to click on their banners. This is a brand hammering strategy, and a CPM deal would be preferable.

In addition to the massive branding effort above, the decision to go for a CPC, CPM, or CPA ad becomes a calculated decision when you have a product you want to sell on your website.

Would you pay the publisher only for the visitors they send you? Or would you pay him for every thousand ads he shows for you? o Would you pay him a commission for the sales of the visitors he sends you?

This is complicated. You may need to read the paragraphs below slowly, or even several times, to get the gist of what I’m saying…

To help you decide, you should first run a pilot CPM campaign that will help you measure results. Your CPM campaign and the number of clicks on your banner will let you know exactly what your CTR (click through rate) is for your banner.

Your CTR will help you decide the type of campaign: CPM or CPC? If your CTR is high, you should go for CPM, if it is low, you should go for CPC.

The reason for this is simple. If you have a low CTR, you would rather only pay for the little traffic that comes to your site. If your CTR is high, then you won’t mind paying CPM, because your cost will not increase for more and more visitors coming to your site, but will stay the same.

I will explain the above, with a couple of examples:

Example 1

Let’s say a website you want to advertise charges a CPM of $5.00 and a CPC of 50 cents.

And, do you have to decide if you should go for CPM or CPC?

Let’s say you first buy 1,000,000 impressions.

This equates to $5000 ($5 per 1000 impressions x 1000)

Now let’s say your CTR is not good and is 0.2% (or 2 clicks per 1,000 ads)

Now, you need to calculate the amount you would pay if you had purchased a CPC.

If your CTR is 0.2% and you show 1,000,000 ads, this turns out to be…

0.002 x 1,000,000 = 2,000 clicks.

So essentially you have paid $5000 for 2000 clicks or $2.50 per click!

This means that it is better to buy based on CPC, because a click there costs me only 50 cents! And if I choose CPC, I’ll get 10,000 clicks for $5,000… which is 5 times more than the clicks I get on the CPM (2,000) model.

Example 2

Let’s say your banner ad turns out to be very good and gets a very good CTR of, say, 5%.

Now you have to decide ..CPM or CPC.

Let’s analyze as above –

I paid $5000 for 1,000,000 ads at 5% CTR

That means 5% x 1,000,000 ads were clicked, which equals

= 0.05 (5%) x 1,000,000 = 50,000 clicks!

So for $5000, I got 50,000 clicks.

Now if I had bought based on one click then at the CPC rate of (50 cents) I will pay

50,000 x $0.50 amount per 50,000 clicks, which is $25,000 (5 times what you would pay with CPM, for the same traffic)

Therefore, I prefer to buy with a CPM system for this banner ad campaign.

What about the CPA?

I have devoted a separate chapter to this. This system is slowly gaining popularity. It seems to be the fairest system of the three methods, especially when you are selling a product or service. Both Google and Yahoo are leaning towards moving their CPC system to a more fair and measurable CPA system. Google has recently launched Google Analytics and Google’s version of PayPal (Google Checkout), which is a positive and firm step towards their CPA plans.

Selling ad space on your website: how much can you charge?

Today, CPM rates have dropped from highs of $50 to $10 down to $2 in many cases.

If you have a lot of traffic, you can approach the ad networks and they will serve the ads for your website. They will give you a code snippet to insert into the pages of your website. You will get a Username and Password to log into a control panel area on the main ad-networks website, to see how your site is performing. Ad-networks pays you based on CPM or CPC, depending on what your customer (the advertiser) opts for. They will take from 40% to 60% commission. This is acceptable, considering the fact that they get you the customers and the revenue, and they have to manage all the advertising technology and payment systems.

Most of these ad networks require you to have a certain number of impressions per month to qualify to be part of their network of websites. For example, DoubleClick requires a minimum of 5 million page impressions per month. There are many medium sized networks such as Advertising, fastclick, ValueClick (CPC only, partly owned by DoubleClick) and even smaller ad networks like burstnet. You should visit adbalance for a full list and summary of popular ad networks.

Billboard Management Software

If you want to manage your own Clients and their advertisements for your website, you will need to develop an ad serving engine or license a third-party engine and install it on your website. You can get a list of free and paid software scripts that you can install on your website at cgi-resources.com or hotscripts.com

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