CPC and CPM payment models: what is it and what is better in specific cases

A webmaster's earnings in CPA directly depend on what payment models are in advertising networks. Most sites use two popular advertising payment models: CPC and CPM. What to choose for a novice webmaster who decides to promote CPA offers? In what cases, which scenario will be more effective? What is it in general and how to calculate cost per click and cost per thousand impressions? Let's understand. 

 

What is CPC (Cost per Click) 

Let's first compare these two popular payment models in online marketing. Let's start with what CPC (cost per click) is. The definition of the CPC metric is very simple: every click that users make on an ad is paid.It doesn’t matter how many people saw the ad, the main thing is how many people were interested in the offer and clicked on it to go further. 

 

 CPC - (cost per click)

 

That is, CPC — this is, for example, when 1000 people saw your ad, but only 150 clicked on it and you paid ONLY for these 150 clicks. 

 

Considering that you are paying for each click, even if it is not unique, it is extremely important to limit the number of clicks that a user can make during the day. Thus, you will eliminate the situation when the user clicks on the ad many times and does not complete the target action. This is definitely true for push networks.

 

Advantages and disadvantages of the CPC model

What are the features of the CPC payment method: 

 

• You get targeted traffic - those who are potentially interested in a product or service click on ads.
• Detailed statistics – Google Ads and other advanced platforms offer detailed statistics.
• Predictable budget - most often, advertising costs can be limited to specific numbers. However, the results of advertising - how much you will earn from this traffic - is not known in advance. 

 

Disadvantages of the CPC Model:

 

• Difficulty of setting up - launching an advertising campaign is relatively simple, but setting it up so that it is effective is more difficult. To get into the predicted plus, considerable experience will be required.
• The risk of going negative. Here we get to the topic of why cost per click matters. In this case, the payment goes regardless of the result, so in the end you can spend more on traffic than it will eventually bring.
• Competition – Google Ads and some other advertising platforms bid for traffic, driving up ad spend.
• It is impossible to estimate the cost of CPC by the minimum cost per click. Here it is important to understand what a good CPC is when promoting CPA offers. As a rule, at a low rate, you will get very few impressions/clicks or poor quality traffic. Accordingly, there will be fewer targeted actions. In highly competitive niches, such as gambling, there are practically no minimum rates. The optimal cost per click can be dozens of times higher than the minimum.

 

What is CPM (Cost Per Mile) in online advertising

Now let's talk about the CPM or Cost Per Mile payment model. This metric implies that you need to pay for every 1000 ad impressions. In this case, you do not need to pay extra for clicks on the ad. 

 

There is one “but”, such a model does not guarantee that the user will make a conversion. This means that after 1,000 impressions there may be 50 purchases or none. To avoid risk, you need to work out creatives and landing pages as much as possible, make them understandable at a glance. 

 

CPM is chosen by webmasters who are confident in the high CTR of their ads: with the help of the CPM model, they can reduce the cost per click compared to the CPC model. 

 

CPM campaigns are great for brand promotion: the more you are seen and remembered, the more you will benefit in the future. This strategy works great when the goal is to introduce, not sell. At the same time, the CPM model is good for advertising popular products in ad networks with a small cost per 1000 impressions.

 

For the CPM model, understanding your audience and the ability to fine-tune advertising to it plays a central role. Not all ad formats allow this. By choosing your audience well, you reduce the risk of wasting your budget on empty impressions.

 

Advantages and disadvantages of the CPM model

Advantages: 

 

• When working on this model, you will be able to predict costs - you immediately know how much you will pay for a certain number of impressions. According to the CPM model, advertising is often sold not only through advertising networks, but also directly from bloggers. Sometimes in batches: other banners may be displayed at the same time as yours. At the same time, you know for sure that you will receive the agreed number of impressions.
• With a high CTR, a CPM advertising campaign can be cheaper than other advertising formats.

 

Disadvantages of the CPM Model: 

 

• Repeat payment for impressions - pay for those who have already seen ads. If the site has a large percentage of a regular audience, then ads will often be shown repeatedly. This reduces its effectiveness.
• Not very good traffic quality. Traffic according to the CPM model can be inappropriate, ads can be turned off to bots. This situation can also be encountered in other cases, but when using the CPM model, it is more difficult to check the quality of traffic, since you pay for traffic on the seller’s side and you do not have access to detailed and real statistics. 

 

 

CPC vs CPM what to choose? Calculation example

What is better CPC or CPM, if we are talking about payment models in CPA, it is not always clear. At first glance, it seems that you need to choose the Cost per Click model. It is more predictable and stable. CPC allows you to more accurately predict how many clicks you'll get based on your budget. 

 

Buying traffic using the CPM model is more risky. It is impossible to predict what result you will get. For Cost Per Mille, creatives are super-important, they determine whether users move through the sales funnel. You need to put a lot of emphasis on tests and carefully analyze the results in order to find those creatives that will work best. 

 

Ultimately, it’s not clicks that decide everything, but conversions (registration, downloads). And in this case, it will not be superfluous to calculate. Let's say your goal is to sell a hair growth product for $5.

 

How to calculate cost per click:

1. Your budget is $100.
2. CPC traffic costs $0.05 per click.
3. For your budget, you got 100/$0.05=2000 clicks.
4. Of these, 50 people bought your product.
5. You received: 50*$5=$250.
6. Your net income: $250-$100=$150. 

 

Calculation by CPM model

1. Your budget is $100.
2. You bought CPM traffic for $1 per 1000 impressions. This means that 100,000 users saw your ad. What is the probability that 100 of them will buy your product? It depends on the product, but the figure can be much higher than 100.
3. Let's say you received: 100*$5=$500
4. Your net income: $500-$100=$400

 

It is up to you to decide how much you are willing to risk. Experts often recommend leaving the CPM model for scaling when you know for sure the winning combinations of a creative-landing page and have made a profit. So less likely to lose money

 

Cost of advertising on CPC or CPM: how much to buy?

Let's say you've already chosen a traffic buying model. An equally urgent question is which bet to choose so as not to miscalculate.

 

Some sites initially have a fixed payment for advertising. There will be no difficulty how much to pay. But when you buy traffic from a social or ad network, the situation is different. Here, the purchase of advertising takes place on the principle of an auction. The one who makes the highest bid, gets ahead of the others, will receive priority for showing their ads. Simply put, more users will be able to see it. 

 

If you set a very low price relative to other advertisers, there is a risk that the ad will not be shown to anyone. And if the CTR of the ad is low, the ad campaign may be removed from the auction.

 

Help: CTR - this is the ratio of the number of clicks on a banner or advertisement to the number of impressions, measured as a percentage. For example, if an ad unit was shown 10 times and clicked on 2 times. So his CTR is 20%.

 

To make it easier for marketers to structure their work, some ad networks show a suggested bid for a purchase. These figures are useful to have a guideline and not overpay.

 

For example, in RichAds you can see two prices at once: the recommended and the top bid.

 

 

As a result, summarizing what is better than CPC or CPM, the answer will be the following: no matter what model - CPC or CPM - you buy advertising. The main thing is not to go to extremes. Too high or low bid often don't work.

  

 

In conclusion

The right choice of advertising purchase model determines how much you spend on attracting a lead. At the same time, choosing the right CPC or CPM model is no less important than making a cool advertising layout or choosing a bid with which you will enter the auction. If you have any questions, write in the comments or go to our forum.