Advertising Networks Explained – CPM vs. CPC vs. CPA…

There are several different types of advertising revenue formats available, and they each pay you as the publisher differently.  Deciding when, where and how to use each model can be a daunting task.

The following overview explains the basic differences between these three types of campaign formats, and compares their strengths and weaknesses.

The three most common revenue models for online advertising are CPM, CPC and CPA.

CPM (Cost Per Thousand Impressions)

Cost Per Thousand Impression advertising, is where advertisers pay for exposure of their message to a given audience. Every thousand times an ad is shown, you get paid the associated CPM fee.

Please allow me a moment to explain (and complain) why this model is most commonly referred to as CPM and not CPT, like you would think it should be.

CPM refers to Cost Per Mille (Latin, for per 1000). Apparently, marketing weenies thought that an already confusing system needed a little Latin to make things crystal clear.

However, some impressions may not be counted, such as a reloads or internal user actions. Typically this is tracked/controlled by IP number or cookies. So, don’t read this thinking you can just go get three of your friends to stay up all night clicking the crap out of your ads over and over to get rich. Advertisers aren’t that dumb (anymore).

This model makes good use of your overall traffic, as you’re getting paid just for showing the ad to users. It makes no difference where you show it so long as it’s on a page likely to be loaded, and you retain the user. (As opposed to CPC or CPA, where you get paid only if the user actually engages with the ad in some way, where you have then lost them – they clicked away and they’re off to the advertiser’s content now.)

As such, it’s typically the lowest paying model. The bad news is, you’re only getting like $3 or $4 per thousand impressions. The good news is – you get paid even if the user scrolls right past it.

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CPC (Cost Per Click)

CPC is also known as Pay Per Click (PPC), and is probably the most widely used type of advertising. Advertisers pay the publisher each time a user clicks on their ad and is redirected to their content. They do not actually pay for showing the advertisement, but only when the ad is actually clicked on. CPC differs from CPA in that each click is paid for regardless of whether the user makes it to the target site, or does anything once they get there.

Google AdSense is a good example of this model. Advertisers make a bid on a certain keyword, vying for impressions against other advertisers who want the same audience. They set a budget, and Google starts displaying their ad throughout their vast network (sponsored Google search results ads, textual ads on publisher’s sites, etc.). Once their daily budget has been met it falls out of the rotation and won’t be shown anymore, and the next advertiser’s ad kicks in.

For the publisher, this is a fairly good middle-of-the-road model, but again – you may be trading that user for the price of the click, as they may not come back once they’ve left.

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CPA (Cost Per Action)

Cost Per Action (or Cost Per Acquisition) advertising is performance based and is common in the affiliate marketing sector of the business. In this payment scheme, the publisher takes all the risk of running the ad, and the advertiser pays only for the amount of users who complete a call to action, such as the purchase of a product or sign-up to a service.

This model actually breaks down into a few sub-types (types of possible “actions”):

• CPA/CPL (Cost Per Lead) is a model typically associated with the user completing an action such as completing a form, registering for a newsletter, or some other action that the advertiser defines as them attaining a lead that may or may not convert to a sale later.
• CPA/CPO (Cost Per Order) is a model based on a user actually completing an order for a product or service. You as the publisher get paid only when a user clicks your ad and then buys whatever the advertiser is selling.
• CPA/CPE (Cost Per Engagement) is a form of Cost Per Action pricing that is used frequently with affiliate networks like LinkShare and the like, and is a more generalized term that could mean either CPA/CPL or CPA/CPO. CPE is an easy way of conglomerating CPL and CPO into one bucket, and essentially means, “You get paid when a user engages with our ad,” and the specific details of the engagement are defined on an advertiser-by-advertiser basis. One advertiser may define an engagement as a user being successfully delivered to their site, another may require a qualified lead, another may require an order, etc.

This is generally the advertiser’s favorite payment model. They define a given Call to Action – like sales of a product, signup to a service, etc. – and pay you a set fee, a percentage of the sale, etc.

Your ad may be shown a zillion times, and may be clicked a zillion times – but you’re not getting paid a dime until the customer actually converts and fulfills the action set in the given campaign. Further complicating the scenario, often times a user will click your CPA ad and visit the advertiser’s content, but they might not convert right then.

Perhaps they bookmark it and purchase later. Unless your advertiser uses a tracking format that retains the referral of that customer over time – you may have given the advertiser a customer that eventually converted, but you never get credit for it, as the actual purchase was derived days later. Good advertisers will set a cookie so that even if the user comes back days later, you’ll still be properly credited with the original referral.

These types of campaigns typically pay out fairly well per conversion, but you’re likely not converting very many in the long run.

An example of a CPA/CPO campaign is this ad for Parallels. I get nada for using my valuable marketing real estate to display the ad (CPM). As well, I make zilch if a user clicks this ad, thereby leaving my site (CPC). However if a user clicks this ad and then purchases Parallels Desktop 6, I get 15% of the sale.

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So which model should you as the publisher use? What’s the secret sauce here? Well folks, I’ll tell you – ALL OF THEM. The secret recipe is to use the right one, in the right spot, in the right way.

As the publisher, you should weigh these different types of campaigns carefully before using them, and take ad placement as seriously as you do choosing the ads themselves.

Here are a few tips on how best to use these different models for the biggest return.

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