Mastering CPM, CPC, CPA, CPL and How to choose the best model?

Online advertising provides ample options to marketers to promote their products and services to achieve their desired objectives, primarily to generate visibility, branding and achieve higher sales. While embarking on a partner program or affiliate marketing program, marketers get scrambled in selecting the right choice of compensation method. Quite often, marketers (buyers) are overwhelmed by the compensation choices and methods while trying to get the best value of their marketing spend.

Definitions

Cost per click (CPC): CPC means buyers pay each time a user clicks on the advertisement. This is currently the most common choice for a partner program. CPC is defined according to search keywords and success rate per campaign.

Cost per mille (CPM): CPM means that the buyers pay for every thousand displays of their message to the target customer. The buyer pays per impression or per load of the page where the advertisement appears.

Cost per acquisition (CPA): Also known as Cost per action, means the buyer pays for every defined action by the target customer. The defined action could be any online purchase, a software download, a credit card application submitted, gift card or coupon purchased etc.

Cost per lead (CPL): As it implies, the buyer pays for every lead generated. There is a thin line of difference between CPA and CPL – while CPA primarily aims to generate sales and revenue, CPL is primarily targeted at generating leads which may result in future sales. For ex: banner or text ads leading to a brochure download, a newsletter subscribe, a successful reference generated or feedback / comment left by a potential prospect.

Advantage and disadvantage

 
CPC
CPM
CPL / CPA

Advantage

  • The buyer knows the exact clicks on its advertisements and the corresponding cost.
  • The time frame for the advertisement can be determined until the desired clicks are achieved.
  • Most common model for visibility with no definite sales or lead generation goals.
  • The buyer knows exactly how many times the banner will be shown and the cost for the volume.
  • Most suitable model while targeting through a premium website, channel or ad spot.
  • Higher bargaining power for buyers as they pay only when the desired result is achieved.
  • No specific time limit or duration for the advertisement to be displayed.
  • Preferred model for buyers as no risk associated.
  • Measurable ROI for advertisement, marketing campaign and sales.

Disadvantage

  • Not the best indicator of the campaign quality
  • No defined relation with sales and leads generated.
  • Dependable on click tracking technology and measurement.
  •  Not the best indicator of the campaign quality
  • Very weak relation with sales and leads generated.

 

  • Media seller or publisher may not allocate premium real estate or media for this model as it locks the real estate indefinitely.
  • Dependent on technology to track and measure success of campaigns.

How to choose the best model that fits your need?

CPC: CPC is a performance based model; publishers get paid only if the ad receives clicks. Small publishers and direct response marketers like CPC the best as they pay only for the clicks achieved irrespective of how many impressions created in the process. CPC is the also lowest risk model for buyers as they have to pay only for the performance.

CPM: If you do not have a defined target audience and do not want to pledge a large sum of campaign money to start with, CPM is the way to go whereby you spend a small amount initially and buy more media as you go. Do keep in mind that CPM is about premium space, premium publishers and premium price.  The biggest and best publishers follow CPM model worldwide.

CPA / CPL: This is the most preferred model for buyers whereas this is the most reluctant model offered by the publishers as they get paid only if a lead is generated or a sale is done. If you have clear marketing / sales goals, you know your target audience and you know where they congregate, assign a generous budget to CPA / CPL campaign and forget about it. CPA / CPL model also allows you to conveniently measure the ROI of your campaigns.

Now that you know which model to go with, you will be wondering what else you need to ensure for a successful campaign. Here are few handy tips.

  1. Work closely with the publisher to ensure a high quality campaign.
  2. Ensure that your banners, posters, pop-ups look clickable and carry compelling messages
  3. Ensure that your publisher is competent and capable across devises and platforms such as handhelds, mobile, tablets apart from desktops.
  4. Periodically review the performance of your publisher and calculate your ROI, just in case you found an alternate publisher who could deliver better results or offer a better rate to you.
  5. Periodically benchmark your campaigns against your competition and be proactive.
  6. Look for hybrid models if one single model does not suit your campaign goals.

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