CPC, CPM and CPA are acronyms and stand for Cost Per Clic, Cost Per Mille and Cost Per Action, respectively. These are key concepts in paid online advertising and affiliate marketing.
When a company pays to have its advertisements displayed on Google results page, on Facebook or on other websites, it is usually through one of the three models mentioned above. Let’s see what each of them is about.
How does CPM work?
This model calculates the cost every one thousand impressions –the cost paid by an advertiser for every one thousand views or clicks of an advertisement. For instance, if the CPM of a Facebook campaign is $20, then 5,000 impressions will cost $100.
The advantage of CPM is that at first sight it’s cheaper. The disadvange is that an “impression” is not the same as a visit or action. Lots of people can actually view the ads but this doesn’t mean the campaign will bring about tangible results.
The better the segmentation (specs of the target audience) and the more attractive the ad, the more effective the CPM campaigns.
How does CPC work?
In this model, the company pays for every click of a user on their advertisement. For instance, if the cost per click of a campaign is $2, and in one day 200 users click on the ad, then the advertiser will have to pay $400. It is possible to set a maximum budget in CPC campaigns so that when that agreed number of clicks is reached, the advertisement is no longer displayed.
The advantage of CPC campaigns is the fact that you only pay for impressions that have generated interest enough so as to follow the link. Its disadvantage is basically the same as before –a click does not translate into a specific action. The user might simply get into the site and leave immediately afterwards, making no purchase or sharing no personal data at all.
This article may be helpful: What is a lead?
How does CPA work?
Cost per action, on the other hand, is a model where the advertiser only pays when a user views the advertisement, clicks on it and performs an action on the site. This action is usually a purchase, but sometimes registrations are also taken into account, as they help increase the database of leads or potential clients.
Affiliate marketing works very similarly to CPA; the sites recommending products or services keep a commission for each referred sale through outbound links. The links can be displayed as direct advertisement or as a subtle recommendation.
The advantage of CPA is that you pay only if you get some profit. The disadvantage is that the cost per action on these type of campaigns may be higher than the cost of well-designed CPM or CPC campaigns.
For example, a very effective CPM campaign could cost $400 and get 1000 finished actions, with a cost per action of $0.4. In the meantime, a CPA campaign could cost us that same $400 with only half the finished actions.
You might also be interested in: What is Remarketing?
Which type of campaign works better?
As it happens with many other key questions in digital marketing, the answer is “it depends”. Every model has its pros and cons, but if properly handled, the three models can be effective –and on the contrary, if not properly handled, all three of them might result in money loss.
It is always recommended to invest part of the advertising budget in each of these strategies, and find out which one works better in each particular case.
To learn more about CPM, CPC and CPA
As you’ve already noticed, picking among these three advertising types is not easy. To help you learn more and make the most of your investment, we’ve selected a list of useful resources for you:
- A beginner’s guide to CPM, CPC and CPA campaign options – From AdCash
- CPM, CPC, And CPA: What’s The Meaning, Differences, Advantages, And Disadvantages? – by Media Tomo
- CPC vs CPA vs CPM – Understanding Online Advertising Price – by MonetizePros
- Use CPM, CPC, and CPA to convert customers – by The Next Scoop
- CPM, CPC, CPL, CPA: Which Online Ad Models are Best?! – by AdBoom Advertising