Planning to organize contextual or display advertising on the Internet, advertisers provide a certain budget for these companies. Hence, they want to see where their money is being spent.
Even more important for an advertiser is to understand how best to invest in an advertising campaign so that it is as effective as possible, money is spent sparingly, and users are attracted to the site to the maximum.
To understand the reports on the conducted advertising campaigns, as well as their planning, there are such parameters for measuring advertising strategies as CPM, CTR and CPC-indicators.
CPM and CPC are professional terms for pricing models, online advertising payment options. And CTR is an indicator of the effectiveness of online advertising.
What is CPM?
It is a payment model accepted in contextual and banner advertising, which implies payment for every 1000 impressions of an ad to a user. The abbreviation stands for Cost Per Mille. It is used when it is important to show advertising to a wide range of visitors, in particular, this model is adopted when advertising a product in the media and on TV. It is also used if they want to promote a new product: multiple impressions will increase recognition faster. For fixed cost ads, CPM is a metric that shows how much 1000 impressions cost.
Calculation of advertising efficiency
CPM is an important characteristic for media planning and calculating the effectiveness of "delivery" of an advertisement to the end consumer. The CPM value depends on the number of visitors to the advertising platform, or rather, on the number of intended direct contacts with the ad, and the cost of advertising for a specific unit of time. Using these parameters, you can calculate and compare how effective the selected advertising sites are.
Formula of CPM
CPM = cost of placing an ad /number of prospective contacts * 1000
For example, the cost of placing an advertiser's banner on the page of a thematic portal is $ 200 per week, for the same period of time the statistical average data on visits is 10 thousand people. As a result, the CPM for this site will be equal to: 200 / 10,000 * 1000 = $ 20 per thousand impressions of the advertiser's banner.
Features of the CPM indicator
Each impression is counted and summed up. Whether the user wants to click on the ad and follow the link to the advertiser's website - there are no guarantees at all.
When paying for impressions, clicks are free.
The ability to display advertising exclusively in front of the target audience, having previously studied the site traffic. If the platform site assumes the ability to collect data about visitors (for example, gender, age, profession, geography during registration), then the employer can set the parameters according to which his advertising will be shown only to the most promising visitors from his point of view. This means that the budget will be spent more rationally.
Choosing a payment method for impressions, you should take into account the activity of the audience on the donor site. The more active users are, the more often they are shown the same ad, therefore, money is spent faster, and the girth of "viewers" is less.
Who suits CPM?
This payment method is usually used when it is necessary to reach information to a wide audience:
1. Dissemination of information about sales, promotions, discounts, etc .;
2. Increasing the popularity and brand awareness;
3. Creation of reputation and image;
4. Increasing interest in the event, event;
5. Promotion of a new product.
The importance of CPM
CPM is also a quantitative measure of a page's profitability. It shows the revenue generated by clicks from 1000 impressions and allows you to calculate the possible revenue if you have information about the number of page impressions. The CTR indicator used for the same purposes reflects not quantitative, but qualitative characteristics of a page's profitability. The concept of CPM was introduced to calculate the exact amount of profit taking into account the cost of a click.
What is CTR?
CTR ("click-through ratio" or "click through rate") is the percentage of the total number of clicks of users of the donor site on advertisements, banners, teasers or text links, to the number of their impressions. The higher this indicator, the more promising the advertising platform.
CTR is an assessment of the effectiveness of an advertising campaign as a whole, each donor site and each ad separately.
Knowing the CTR of each individual advertising platform you can calculate costs, make a preliminary advertising estimate and decide on a pricing model.
Formula of CTR
By calculating the CTR, you can objectively assess the feasibility of advertising costs. If we talk about contextual advertising, the higher the CTR, the lower the CPC (cost per click on an ad) will be. In addition, a high-quality contextual ad or display banner with a high CTR will be advertised more often on various platforms and occupy high positions in ad units of contextual systems.
What is CPC?
CPC ("cost per click") is the cost of each click on an advertisement along with the subsequent transition of the user to the advertiser's website.
Formula of CPC
There are many factors that affect the cost per click. First, the ad itself, its quality, and the effectiveness indicator (CTR). The ad needs to match the query that the user enters in the search bar. It is equally important that the request and the ad correspond to the page that the user lands on after clicking on the ad.
CPC = cost of ad unit placement / number of clicks
There are two CPC models: Flat-Rate and Bid-Based.
Flat-Rate involves a CPC agreement between the owner of the ad space and the advertiser.
The Bid-Based Model is the basis for PPC advertising. It is about the competition between advertisers to display an ad. Bid is not the only condition for winning ad space. Many other factors affect ad position: ad CTR, ad copy quality, ad relevance to landing page, and so on.
Features of the CPC indicator:
- 90% of the ad unit is clicked by really interested users. This means that pay-per-click allows you to get a more loyal audience.
- when paying for each transition of users to the site, there is always a risk of abuse of this opportunity, for example, empty "clicks" of the budget by competitors.
- When paying for a click, donor sites provide statistical information about each user who clicked on the advertising link. Thus, the advertiser has the opportunity to understand which audience is interested in his advertisement.
3 basic rules of CPC model work
1. Prioritize and create goals for the campaign.
2. Make a simple and understandable structure.
3. Set up campaigns manually.
But which model is the best for your business?
There is no definite answer. In order to attract relevant traffic and get the desired result in the end, you need to test different approaches and analyze the indicators obtained. Each traffic buying model has its own characteristics that can be used to your advantage if you take into account not only your interests, but also the interests of the advertising network.