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!

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