An Online Advertising Pricing Models


Today’s digital advertising is filled with many different pricing options. Just a few decades ago, there only used to be two options: CPC (cost per click) and CPM (cost per 1000 impressions). Now there are dozens. Indentify which of the many different digital advertising pricing models makes the most sense for your business
Some of them are explained below:

What is CPM?

Cost Per Mille. Usually refiects the price of 1000 banner impressions in dollar currency. The CPM model refers to advertising bought on the basis of impression. Payment depends on the number of impressions solely. For example, a banner is being shown 100,000 times at CPM of $0.5, means that the payment by theadvertiser to the publisher would be 100,000 * 0.5 / 1000 = $50.

Advantages
- The advertiser knows exactly how many times the banner will be shown, and what would be his   daily / total costs.
- Common model when buying media against a specific URL / site / ad spot.
- CPM is being prioritized first by ad-networks since the publisher knows exactly what the expected revenue per impression is.

Disadvantages
- Very weak performance matrix, very weak correlation with sales or leads.
- No indications for the advertiser on banner, campaign or media quality.
- When dealing with multiple sites or ad spots advertiser might receive cheap media instead of effective media.
- Effective frequency capping is unknown.

What is CPC?

Cost Per Click. Known also as pay-per-click (PPC) from the publisher's point of view. In this model the advertiser pays for each click made on a banner impression. Payment depends on the number of clicks solely. For example, a banner is being shown 200,000 times, and being clicked 1000 times at a cost of $0.08 per click. The Click through rate - CTR in this case is 1000/200,000 = 0.5%. The cost to the advertiser would be $0.08 * 1000 = $80. Since the advertiser paid $80 for 200,000 we say that his E_ective CPM (or eCPM) is 80/200 = $0.4.

Advantages
- The advertiser knows exactly how many times his landing page / site will be clicked, and what would be his daily / total costs.
- The banner will be shown until enough clicks are being generated
- Common model when looking for exposure with no direct lead or sale goals
- CPC is optimized quiet fast by optimizing ad-networks to generate high CTR
- Reasonable indicator for banner quality

Disadvantages
- Weak correlation with Sales or Leads
- Dependable on click tracking technology and measurement
- Weak performance matrix, vulnerable to click frauds
- No indication for campaign quality (only banner quality)
- Advertiser might receive cheap media instead of effective media
- Effective frequency capping is unknown


What is CPL CPA CPS?

Cost Per Lead / Cost Per Acquisition / Cost Per Sale. In this model the advertiser pays explicitly per transaction type made by the buyer that resulted from a click on a banner impression. Payment depends either on the cost of lead, cost of sale or a percentage of the sale's revenue. For example, a banner is being shown 200,000 times, and being clicked 1000 times. 10 clicks converted to a lead where the advertiser pays 5$ per lead. The total advertising cost would be 10*5 = 50$.

Advantages
- The advertiser pays according to results only.
- The banner will be shown for unlimited period of time.
- Preferred model for the advertiser. Zero risk on his side.
- Low vulnerability to frauds.
- High correlation between sales and campaign and banner quality.

Disadvantages
- Publisher will not allocate premium media for questionable profit
- Publisher will refuse to work in this model when cpm / cpc models can fill his inventory
- Dependable on conversion tracking technology and measurement.
- Hard for the publisher to estimate when to stop a campaign


The number of different pricing models will only continue to increase in the future, with platforms and media competing for share of advertising budget. As the number of options grow, it is important for advertisers to understand the trade-offs between pricing models in order to pick the combination most suitable for their campaign goals and resource availability.

Comments

  1. johan32October 31, 2018 at 1:00 AM

    Thanks for sharing this informative post. Now days, I am collecting information related to SEO and PPC Management because my business is new and it needs to be promoted in the market and since online marketing is so much in trend, it is essential to know about all these terms.

    ReplyDelete

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