CPM, CPC, and CPA
CPM stands for cost-per-mille, mille being Latin for one thousand. In the land of online media, media companies charge advertisers for impressions, which are counted in 1000s.
Let’s say you want to charge $10 per 1000 impressions on your blog, that means that you will charge $10 for every 1000 people who see an advertisement. The way that online advertisers count impressions is by page views, so 1000 pageviews equals 1000 impressions for each ad on the page. If you have 10 ads on the page—voila! You’ve got 10,000 impressions. At $10 per 1000 impressions, that’s $100!
How do advertisers determine how much they will pay for each impression? Black magic! Seriously, there are standard ranges, but as any good sales person knows, it’s all about how you pitch it.
CPM rates can vary from $0.25 to $200, or more. Media companies tend to be able to charge higher rates if a) the advertiser is selling a higher cost good (like fancy watches or electronics) and b) the advertiser believes that the audience is a particularly good fit for their product and particularly prone to open their wallets.
CPC stands for cost-per-click. This is the rate that websites charge advertisers every time someone clicks on an ad. If the CPC for a site is $50, and an ad gets clicked 1000 times over the course of the month, the advertiser pays the publisher $50,000.
Google is famous for their cost-per-click ad selling strategy—all of those Google Ads you see on your search results or next to your email? Google only charges those advertisers if you actually click on the ad. If no one clicks, Google makes no money.
Looking to only pay for ads that drive action? Then you want to check out CPA or cost-per-action (also known as pay-per-performance (PPM) or cost-per-acquisition (CPA)). When a media company charges an advertiser using a CPA model, the advertiser only pays out if a user clicks AND does a specific ACTION.
What does that action have to be? Depends on the advertiser! If Skillcrush ran ads we might pay only for users who signed up for our newsletter. Amazon, on the other hand, might pay only for users who actually bought a book.
One of the best and worst things about online advertising is that it’s really easy to track. Want to know how many people saw your ad? Look at the page views! Want to know how many people clicked? Look at the click rate.
On the surface this looks like a good thing, but that depends on who you ask! Advertisers like it, but media companies don’t because it has dramatically brought down the amount that advertisers are willing to pay for ads because now they know exactly what they are getting.
Cocktail Party Fact
Cost-per-impression is actually how television and magazine advertising has always been priced. Back in the day, magazines used to do all kinds of funny math to bump up their number of impressions. One major American magazine used to count 8 impressions per copy of the magazine!
How could eight people look at EVERY copy of the magazine, you ask? Well you have to account for all the people who picked it up in the grocery store aisle or flipped through it at the doctor’s office or shared it with their friends.