Today, digital ad sales are overwhelmingly sold by two distinct pricing models – Cost-Per-Click (CPC) and Cost-Per-Thousand (CPM). We get a lot of questions about which is best and when one model should be used over the other. Here’s our general take on things.
The CPC pricing model is very attractive to advertisers and allows them to only pay for advertising that results in a viewer clicking the ad and leaving the publisher's platform to go to the advertiser's platform. Under this model, an advertiser is not charged based on how many times their ad is shown – only on how many times their ad was clicked on. This model has provided millions of small businesses that otherwise could not afford to advertise with the opportunity to compete with their larger better-funded competitors.
Under this model, an advertiser creates an ad and places it on an ad network along with a price they are willing to spend each time someone clicks on it. CPC costs range anywhere from $0.15 to $200 per click. The average CPC currently across all industries and all networks is estimated to be $1.50, with the legal industry seeing the higher end of this range.
While this model is ideal for advertisers, it does not always work well for publishers. Publishers that are serving visual display ads, such as CNN, NY Times, Weather.com, etc., often avoid taking these types of ad sales. The argument is that the ad, regardless if it was clicked on or not, provides the advertiser with exposure and thus should be paid for accordingly.
If you’re thinking about advertising on search engines like Google or Bing, then CPC is the model you will ultimately have to use. Google AdWords and Microsoft AdCenter (Bing) use this model exclusively for keyword advertising. This is a wonderful thing and allows you to experiment quickly to see which keyword ads drive clicks and conversions.
If you’re thinking of advertising on Facebook or Instagram, then you’ll have this opportunity as well – but aren’t limited to it. While it's still the most common pricing model for ads on these platforms, it is not the only option.
Plan on using this model if:
- You want to run keyword ads
- You have a limited budget for brand awareness
The CPM pricing model is similar to traditional print advertising sales. Advertisers are simply paying publishers for a set number of ad impressions – regardless of the action that view takes. This model is ideal for publishers that have a large user base and can generate a large number of impressions.
Like CPC rates, CPM advertising rates vary greatly and are based on a variety of factors. When advertisers place ads using the CPM model, they are generally negotiating the rate based on the amount of inventory they are buying. An advertiser that is willing to buy in bulk will see significant cost savings. CPM units can range anywhere from $1.00 to $100 and higher.
Like CPC – advertisers have the ability to buy these ad units directly from publishers or through ad networks such as Google AdWords or DoubleClick.
Generally, we don’t do a lot of CPM ad buying. That’s not to say we avoid it all together. In fact, we feel strongly that it has its place for advertisers that are interested in building overall general brand awareness over directly generating sales. While measuring the impact on your brand can be difficult, this type of advertising can pay off in the long-run.
Plan on using this model if:
- You want to drive overall brand awareness and are less concerned with measuring direct sales or conversions.
- You want to advertise on a single site, such as a trade publication or niche vertical site where all visitors are likely to be interested in what you have to offer.