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Table of Content
Payment conventions
Because of the ability to track results of online advertising at a more granular level than what is available through traditional advertising, varying ways have developed for the advertisers and publishers to do business. The three most common ways in which online advertising is purchased are CPM, CPC, and CPA.
CPM (Cost Per Thousand) advertising is the most common basis in the business and is used for most display advertising and rich media. This scheme most closely resembles offline advertising, wherein the advertiser is paying for exposure of their message to a specific audience. CPM costs are priced per thousand.
CPC (Cost Per Click) advertising is also performance based and is common in search marketing, where it is often known as Pay per click (PPC). In this scheme, an advertisement may be displayed (and assumedly viewed) many times, but the advertiser pays based only on the number of user clicks. This system provides an incentive for publishers to target ads correctly (often by keyword), as the payment depends not upon the ad being seen but upon the viewer's responding and following the hyperlink.
CPA (Cost Per Action) or (Cost Per Acquisition) advertising is performance based and is common in the affiliate marketing sector of the business. In this payment scheme, the publisher takes all the risk of running the ad, and the advertiser pays for the media on the basis of only the number of users who complete a transaction, such as a purchase or sign-up. This is the best type of rate to pay for banner advertisements and the worst type of rate to charge. Similarly, CPL (Cost Per Lead) advertising is identical to CPA advertising and is based on the user completing a form, registering for a newsletter or some other action that the merchant feels will lead to a sale. Also common, CPO (Cost Per Order) advertising is based on each time an order is transacted.
Cost per Conversion Describes the cost of acquiring a customer, typically calculated by dividing the total cost of an ad campaign by the number of conversions. The defintion of "Conversion" varies depending the situation: it is sometimes considered to be a lead, a sale, or a purchase.
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