Do you know your CPC from your CPA? Or from your CPM for that matter? If it’s all a blur of acronyms, don’t worry – we’re here to explain. We’ll be taking you into the wonderful world of online advertising, where you can pay for a campaign using a range of different models (with confusingly similar abbreviations). These models have the potential to make or break your advertising campaign, so it’s important to get your head around the differences between CPC vs CPA vs CPM.
The terms we’ll be talking about are an essential part of any digital marketer’s vocabulary. When you create online ads – from text ads to banner ads – and put them on websites – search engines (such as Google), social media or other sites – you can be billed according to a number of different models. These include the number of times someone clicks on your ad; the number of times your ad results in a conversion; and the number of times the ad is displayed on the website. It’s critical that you understand these models. Let’s bust some jargon – Maverick-style.
It’s time to find out what all those mysterious acronyms actually mean. Each one involves dividing the cost of your advertising campaign by a different metric. Here’s our handy guide (with the relevant formulae).
- CPC: Cost Per Click – the average cost of every click your ad receives (campaign cost / number of clicks)
- CPA*: Cost Per Acquisition – the average cost of one customer conversion via your campaign (campaign cost / number of conversions)
- CPM: Cost Per Mille (Thousand) – the average cost of every 1,000 ad impressions (campaign cost / impressions) Note… this is sometimes also referred to as Cost Per Action
You may also come across a number of other acronyms that it’s good to be aware of. Before we dig deeper into CPC, CPA and CPM, here’s a quick rundown of their less commonly encountered cousins.
- CPV: Cost Per View – the average cost of one 30 second (or longer) view of your video (or user engagement with it). (campaign cost / number of video views)
- CTR: Click Through Rate – the percentage of people who see your ad and then click on the link. (number of clicks / number of impressions) x 100
- CPL: Cost Per Lead – the average cost of lead generation via your campaign. (campaign cost / number of leads achieved)
So, those are the basics. Let’s now get to know CPC, CPA and CPM.
Cost Per Click (CPC)
As we mentioned earlier, CPC is when you pay a fee each time someone clicks on your ad. When you reach the end of your budget, your ad is automatically removed from the site where it’s being shown. Most websites go through a third party company to get matched with advertisers. The biggest and best-known is Google Ads (which uses the Google AdSense platform), but there are others around.
- The UK average cost-per-click on Google Ads is £0.66 to £1.32
The amount you pay with CPC can vary depending on a number of factors. Dynamic pricing means that the fee will change, for example, according to how popular your chosen keywords are. That means that the amount you pay for a click on your ad can vary. You’ll get more clicks if you paid a lower average CPC and fewer if you paid a higher average CPC.
We know what you’re thinking: how on earth did this all come about? Well, marketing fact lovers, the first documented examples of Pay-Per-Click (PPC) advertising emerged in the mid-nineties, with Planet Oasis among the pioneers. However, PPC really took off towards the turn of the century, when Goto.com (later part of Yahoo) unveiled a Pay-Per-Click search engine proof-of-concept at the TED conference. Then, in 1999, Google began search engine advertising, introducing the Google AdWords system (now Google Ads) in 2000, which initially relied on a Cost Per Mille (CPM) model. In 2002, Google introduced PPC, so advertisers would only pay when someone actually clicked on their ad. Today, Google Ads is the market leader, generating $147 billion in 2020.
Cost Per Acquisition (CPA)
So, CPC means that you only pay when someone clicks on your ad. Sounds like a good deal, right? But what happens if that person clicks on your ad, goes to your site – but then immediately leaves? To avoid this situation, some marketers prefer to use a Cost Per Acquisition (CPA) model. This means that they only pay when someone performs a certain action, for example, watching a video, giving their details or buying a product. It allows marketers to define and set their chosen type of acquisition before the advertising campaign is launched and only pay when this specific acquisition happens. With CPA, you know for sure that your ad or content is effective – after all, it convinced someone to do what you wanted.
Cost Per Mille (CPM)
With CPM, you pay per thousand impressions (aka ‘ad views’). So if a website charges £1.00 CPM, you’ll be paying £1.00 every time your ad is displayed somewhere on a web page 1,000 times. CPM is the most common way of pricing ads but it only tells you how many times your ad was shown – not whether your ad was clicked on. To find that out, you need to look at the Click Through Rate (CTR), which gives you the percentage of people who saw it AND clicked on it. It’s common practice to measure the success of a CPM campaign by its CTR. (However, you can’t measure an advertising campaign by the CTR alone because an ad may be seen and make an impact even if the viewer doesn’t click on it).
The $64,000 question: CPC, CPA or CPM?
CPC, CPA and CPM each have their own pros and cons.
Cost Per Click
- Only pay when someone visits your site (cost-effective)
- Good if you have a set daily budget (ad taken out of rotation once this is hit)
- Can target based on location, demographics, interests and more
- High Click Through Rates don’t necessarily equal high conversions
- However, they do mean high costs
- You need to continuously optimise to get results and research your target audience
Cost Per Acquisition
- Only pay when a customer is acquired or completes a certain action
- Work out if your ads are driving profits by comparing your CPA to your Customer Lifetime Value
- The best way to measure the conversion capability of content
- Google says advertisers have to have at least 15 conversions in the last 30 days to run a CPA campaign
- CPA only offers value for money if you have strong Click Through Rates, conversion rates and keyword quality
- High-value products will require high budgets to achieve target sales goals
Cost Per Mille
- Visibility – CPM gets your name out there and raises brand awareness
- Flexible and easy to set up
- Usually costs less than CPC
- Just because your ad is displayed, it doesn’t mean it’s been seen
- Tech issues (for example, ads failing to load) and click fraud can be a problem
- Fewer platforms available
As you can see, it’s not a case of ‘good’ or ‘bad’ when it comes to cost models. It’s a case of choosing the right one for your specific budget, brand and goals. Chasing clicks is tempting – a high stat always looks attractive on a marketing report! But ultimately, CPA can result in higher revenue and other concrete gains, and that’s what digital marketing’s all about.
Having said that, there’s a place for every cost model in a digital marketing strategy. The key is to apply them to right part of the sales funnel.
For instance, at the top of the funnel, CPM may be your best bet. You’re looking to generate brand awareness, spread the word and reach as many people as possible. Conversions are not your prime goal.
At the middle of the funnel, you might prefer to use CPC. This gives you a great insight into the effectiveness of your ads: a low CPC means lots of traffic but minimal spend. The only problem is that clicks don’t equal website sessions.
At the bottom of the funnel, CPA could be your secret weapon. This cost model is designed to help you drive conversions. It will show you not only how effective your ad is, but also give you the insight to fine-tune your landing page, website, forms or other elements of the customer journey. A low CPA means you’ve smashed your messaging and strategy. However, getting to this stage may mean some trial and error.
How to improve results
You’ve read this article and realised that it’s conversions that you want, not clicks. So, how do you go about achieving a sexy CPA? Here are a few tips to help you on your way.
1. Optimise your ad or content
Is your copy working as hard as it could? Is the CTA action-orientated? Is your content appearing in the right place and reaching the right people? Maybe it’s time for some dynamic marketing.
2. Get emotional
Does the ad appeal to both the head and the heart? Science suggests that emotions are as influential as logic when it comes to inspiring actions. Make sure your ad is working on both a logical and psychological level.
3. Pay attention to the analytics
Make sure you re-evaluate your keywords – identify the top performers and the disappointments. Tweak and refine to achieve your target CPA, and don’t forget to review other data such as the performance of different locations.
4. Think about video
Video is a highly effective way of driving people to your website. Some 89% of marketers say their video marketing has brought good ROI. Incorporate it into your overall digital strategy to boost CPA.
5. Give your landing page some love
When customers click and come through to your site, what do they see? If you want to boost conversions, make sure your landing page motivates them to perform the action you want. Optimise with a goal in mind rather than tweaking randomly. A/B testing can help you refine your approach, as can software such as Unbounce, Hotjar and Instapage.
6. Do some digging to identify your target audience
You’re more likely to deliver a higher CTR and as a result a lower CPA if you adjust your paid media targeting to reach the right people who are most likely to convert or purchase.
7. Be clear about your intentions
Make sure your call to action (CTA) is really clear in your ads, so users know what to do when they see your content. Do you want them to watch your video? Or do you want to them to sign up, purchase, learn more? Whatever that answer is, sign-post it.
8. Test and Learn… And try different formats
What works for one business may not work for the other. You might find your audience prefers longer videos that explain your complex product. Test and learn what works for you.
At this point, we’re hoping that CPC, CPM and CPA are no longer a jumble of letters, and that you understand their pros and cons. You should now be equipped to assess your goals and choose the cost model that’s most effective (and cost-effective) for your advertising campaign. If there’s one thing to take away it’s that you shouldn’t automatically plump for CPC because it gives good stats. CPA can be far more valuable, even if the figures don’t have the same wow factor.
As always, The Maverick Group’s digital mavens are happy to explain further and give you expert advice. Don’t be shy. Give us a shout.