Wednesday, June 28, 2006

How to Buy Advertising Part II

CPC, CPA, CPM, What do all these TLA’s mean?

Last time we talked about two ways to understand advertising. Two models of what advertising is like: Duck hunting and deer hunting. Duck hunting advertising is the kind that shoots a lot of ads at lots of people and some of them hit. Deer hunting is where you take aim at a target market and shoot your ads right in front of them.

This time we want to talk about three more models, but this time they’re pricing models, represented by the letters CPM, CPC, and CPA. These show us how advertising is bought and sold, and how results are tracked. Knowing how to use these TLA’s (Three-Letter Acronyms) will help you when you decide what kind of advertising to use and when you go to make the purchase. They’re really not that hard to understand. Let’s take them one at a time.

CPM stands for “Cost Per Mil”. It’s often seen as “Cost Per Mille” or spoken as “Cost Per Thousand”, because the word Mil is Latin for 1,000. We start off with this one because it’s the one that’s the most common in the world of traditional advertising. Let’s say, for an arbitrary example, that someone wants to buy an ad in a newsletter. Let’s say that one newsletter has a circulation of 5,000. And let’s say that the ad costs $50. An ad in that publication would then be priced at $10 CPM, or in other words, $10 per 1000 readers. That ad would be a better deal than in a mailer with a circulation of 7,000 that cost $100 (a little more than $14 CPM).

Online, CPM is also sometimes expressed in terms of CPI, or “Cost Per Impression”. This means that when an ad loads onto a computer screen (as a part of a web page, email, or pop-up, etc…) it has been shown once (one “impression”). A single impression, granted, is different than 1,000 impressions, but it’s still paying per showing, like a magazine or TV ad.

CPM advertising is often used (both online and off) for branding. These are ads that, while they might not generate immediate response or immediate traffic, solidify the name recognition of a product. Political ads at election time are perfect examples of branding.

CPC is a system that’s unique to Internet advertising. It’s an acronym for “Cost Per Click” and that means that the company buying the advertising only pays when the potential customer clicks through the ad to the website. It’s a great way to buy ads, because you don’t pay when it doesn’t work. If an ad appears 100 times on 100 websites, but only generates one click, then the buyer only pays for that one click.

While one might think that this would be less expensive, in the long run, it can cost the same. The cost for that one click can easily be as much as the cost for a hundred or even a thousand or more impressions.

CPC is often referred to as “Pay Per Click” or PPC, especially when referring to advertising on the search engines. This is where the search engines place text ads for “Sponsored Links” above and to one side of their “organic listings”. Advertisers place bids on certain keywords and when someone clicks on their ad, the amount of their bid is deducted from their account. The higher the bid, the closer to the top is the listing.

Finally, there is the CPA. This stands for “Cost Per Acquisition” or sometimes “Cost Per Action”. This means that the advertising company has a way of tracking not only when someone clicks through an ad to a site, but also if the customer acts on the offer at the landing page. If the customer buys something, or signs up for an offer, then they are an acquisition or they have acted, and the advertiser pays for the ad. This is more complicated to set up, and usually costs the most, but in the end, you’re paying for real results.

In the world of advertising there are many variations and shades of these three models, and know what they are and how they work will allow you to first, speak intelligently with those that are trying to sell you, and two, understand what is best for your business!

Wednesday, June 21, 2006

How to Buy Advertising Part I

Going Hunting

Buying advertising can be a very confusing thing. What kind? Where? How much should I do, and how much will it cost? How will I track my results? It can leave you pretty baffled.

Let me start out simplifying things a little bit.

First of all, let’s talk about hunting. Deer hunting and duck hunting, specifically. Don’t worry, no deer or ducks were harmed in the writing of this article.

But they make for a convenient analogy because all of the world’s advertising fits very nicely into one of those two models.


OK, this is where a hunter goes out in the woods near a swamp or pond. There’s a lot of ducks in the air, and he shoulders his shotgun and blasts up a spray of tiny little pellets. Most of them miss. But, a few of them hit, and he gets his dinner.

This is comparable to advertising methods like newspapers, television, radio, and other mass media outlets. Often mailers (traditional and emailers) will be “duck hunting style”. Flyers and handbills fall into this category as well. You might be able to do a certain amount of general aiming, like the hunter does when he decides where to point his gun, but overall you’re just looking for coverage. You’re not so concerned with who’s out there, but rather you’re interested in getting in front of as many people as possible. You put out lots of ads, and most of them miss. But—enough of them hit that you’re profitable, like the hunter getting his dinner.


On the other side of the forest is the deer hunter. He shoots with a rifle, which aims a single shot straight at the target. This kind of advertising is targeted and focused at the people that we already know are interested in our product. In this category are strategies like Magazines (with all their special interests), and direct mailings using targeted lists. Building your own business mailing list is a big part of deer hunting advertising as well. Online, it includes strategies like inbound linking and search engine optimization.

The question that’s in your mind shouldn’t be “Which one is the best,” because they are both effective. They are effective in different ways and with different situations. The question should be “How should I use each one?”

For example, duck hunting is usually done in much higher quantities that deer hunting. Think of it this way. There’s only one bullet in a rifle, but there’s a lot of shot bb’s in a shot gun shell. So, when you do duck hunting advertising, you’ll want to do a LOT of it. If you make one flyer and put it in a single supermarket bulletin board, you’ll probably not get many customers. As a result, per unit, duck hunting advertising is usually much less expensive. In the long run, since you have to buy more of it, you still end up paying.

Duck hunting is also the style of choice for branding advertising. These are ads that, instead of focusing on immediate response, focus on getting the company or the product name in people’s minds. Almost all television ads are branding exercises, and many online ads are also branding. For branding to work, you have to see the company or product name a lot. Why do we recognize the McDonalds arch? Because we’ve seen it over and over and over for years and years.

Deer hunting advertising, while usually being much more expensive per unit, is also much more effective in terms of response. It makes sense. If the ad appears in front of people who are interested, they’re more likely to respond, right? The biggest challenge with this kind of advertising can often be correctly identifying your audience. If you’re marketing to the wrong people, in the wrong way, you won’t get many results. That’s why you don’t often see perfume ads in “Field and Stream”.

The idea, in setting up your advertising campaigns, is to utilize both duck and deer hunting strategies. Don’t neglect either one, but don’t confuse them, either. Imagine going duck hunting with a rifle. It would be difficult to make it all work.