CPC vs CPA vs CPM – Understanding Online Advertising Pricing

Sometimes difficult to navigate in the jargon of marketing. However, when you have to manage media budgets, there are concepts that you absolutely need to know. The concepts of CPC, CPA, and CPM, which designate models for calculating the cost of campaigns, are part of it. Follow the leader.

What are CPC and CPA? What does CPM mean?

Before talking about online advertising, it is necessary to understand the terms with which we are going to deal.

CPC: According to Google, “cost per click (actual CPC) is the final amount charged for a click”. They also say that sometimes you pay even less, the CPC being the maximum bid you make and not the final price you pay. “You are often charged less, sometimes significantly less, than your cost-per-click bid (max CPC) which is usually the maximum you charge for a click. »

CPA: Cost per action or cost per acquisition is, according to Wordstream “a metric that measures how much your business pays to achieve a conversion”. What's important to know is that generally speaking, this cost will sometimes be higher than the CPC because not everyone who follows a link in your ad will end up buying. Some people click on an ad just out of curiosity and don't follow up on the offer.

CPM: “With CPM, you bid on 1,000 viewable impressions and pay for measurable impressions,” according to Google. This means that unlike previous types of payments you make for advertising, this one is actually worth the exact number of impressions a banner or text ad has on a specific page. It's hard to calculate CPC and CPA with a CPM acquisition, but if all you need is to be visible and build brand image, this can be a good choice, even if you can't calculate your conversions.

What is the cost per acquisition (CPA) and how is it calculated?

Definition: although we have already talked about this concept and its definition, we will recall some important things that must be clarified or understood by the advertiser, the publisher and the Internet user:

CPA, or cost per acquisition, is the most important number to calculate when performing or paying for your online advertising. Why? Regardless of the type of advertising you pay for, CPA represents the actual conversion amount you will pay. Formula: For example, if you pay $100 for 100 views on a website and 10 people decide to follow up on your offer, your CPA will be $10. In other words, you pay $10 for every new customer you get. How do you calculate this number? What is the cost per acquisition? Here is the formula proposed by RedReefDigital :

CPA = (marketing costs + sales costs) / $ of new customers

However, we can find another formula, based on your actual online advertising spend:

CPA = cost per click * Clicks / actual leads or CPA = cost per thousand / actual leads

What is the average cost of a cost per click and therefore cost per action in digital advertising? According to Wordstream, the average cost of advertising on Google Adwords is $2.32 on the search platform and $0.58 on the Display Network. The same source places the average cost per action (CPA) on Google's ad network at $59.18. On Facebook, on the other hand, the CPA is a bit smaller. On average, it amounts to 18.68 USD for a cost per click of only 1.72 USD. At the same time, advertising on Bing searches costs at least $50 per click. Here is a short list of CPCs, click-through rates, and conversion rates on Facebook, by industry:

What about the cost per thousand? How much should you pay for a thousand impressions? The best answer to this question comes from Adstage. After analyzing several hundred million ad impressions, they calculated the average cost per thousand at $2.80. These figures are available on the Google advertising network.

CPC vs CPA vs CPM for advertisers

As an advertiser, you have several options when deciding whether to invest in digital ads. However, all of these options can easily be classified into two main categories:

• The Search
• The display

Before discussing advertising costs, at least these two categories should be defined. As an advertiser, you will also need to choose the one that best suits your needs and goals. Search ads are usually associated with search engines such as Google and Bing. They are triggered by proactive searches conducted by the public, who enter keywords specific to their areas of interest. Display ads are associated with online publishers. They are displayed on web pages and most of the time they are visual in nature. They can be associated with specific keywords, but also more likely to be triggered based on demographics, location, the popularity of the website, industry, etc. What should you choose as an advertiser? And what kind of conversion might be right for your business? Although the final decision depends on your main objective, you should at least consider the main differences, advantages, and disadvantages of each option. Pay-per-click and pay-per-view (PPC and PPV) are usually associated with CPC and CPM.