You've probably heard of CPM and CPC before, but there's another type of ad model that you may not be as familiar with: cost per action (CPA) advertising.
These acronyms refer to various forms of online advertising, and it's easy to get confused between them all. To understand the difference between CPC, CPM, and CPA advertising, you need to understand what they stand for.
When should you use CPC, CPM, or CPA? To get the best results from your online marketing campaigns and to lead a high-performing ad operations team, you need to understand each of these three ad models and when it makes sense to use them in your business.
Understanding Cost Per Click (CPC)
In paid advertising on search engines like Google AdWords or Bing Ads, cost per click (CPC) is how much you pay each time someone clicks on your ad. With many programs (such as Bing Ads), advertisers can also set a maximum bid or budget for their campaigns to ensure they don't spend more than they want.
Most advertisers who pay per click use cost per click (CPC) or cost per action (CPA). CPC means you pay every time someone clicks on your ad. The benefit of a cost-per-click campaign is that it can be easier to measure results.
If you have a CPC campaign set up correctly, then any increase in traffic from your ad should increase clicks and thus more leads or sales for your business. This makes it easy to determine how much money you're making with each ad: multiply your earnings by your clickthrough rate.
How To Calculate Cost Per Click (CPC)?
The cost per click (CPC) is a metric that measures how much money a website generates from paid online advertisement clicks. It's calculated by dividing ad clicks' revenue by the total number of ad clicks.
The formula for calculating CPC is: Cost Per Click = Total Revenue Generated/Number of Impressions × Number of Clicks Paid or Non-Paid. It's important to note that it doesn't matter if a customer was clicking on an advertisement out of curiosity or was genuinely interested in buying your product—it still counts as an impression, so all impressions should be included when calculating your Cost Per Click.
Understanding Cost Per Impression (CPM)
A CPM ad is an ad that gets delivered to 1,000 people or more. In other words: when you buy a thousand impressions for your ad campaign. A good way to think about it is the cost per impression. The goal of a CPM campaign is to get your ad in front of as many people as possible without regard for clicks. (This is also called brand advertising.)
Most display ads are sold on a CPM basis because that lets advertisers control where their ads appear (and don't appear). So an insurance company might bid $10 per thousand impressions to show an ad only on websites related to finance and investing. It wouldn't want its ads showing up next to content about medical procedures; that could confuse potential customers.
How To Calculate Cost Per Thousand Impressions (CPM)?
To determine how much you'll make per 1000 impressions on your ad, you'll need to know a few things: 1) What are your estimated impressions? 2) What is your maximum cost-per-click bid amount? 3) How much money do you want to spend per day on ads (budget)? 4) How many days will your campaign run for (run time)?
For example: If you have an estimated 15000 impressions over 30 days at $0.35 per click with a $100 daily budget ($300 total budget), then to calculate what you will make for every 1000 impressions, multiply 300 by 35/1000 = 0.35 x 10 = $3.50 cost per 1000 impressions.
Understanding Cost Per Action (CPA)
CPA is one of three main pricing models for online advertising, in which advertisers only pay their media partners when a specific event occurs. It's also called cost per acquisition (CPA). The most common type of CPA is when advertisers pay only when their ad leads to a purchase or conversion action.
For example, if your website sells products and sets up an advertising campaign on Facebook that delivers prospects to your site, you would pay Facebook only when they click through your ad to purchase something.
Unlike with other advertising channels such as display ads or email marketing campaigns, you can directly tie revenue generated by your advertising efforts back to specific ads—which means you can measure true ROI and run tests with new creative or other targeting options.
How To Calculate Cost Per Action (CPA)?
To calculate cost per action (CPA), you'll need to determine: the cost per conversion for your landing page (this is how much money you spent to get a lead that resulted in one successful conversion). So, let's say you spent $500.00 on a campaign, and you had five conversions. This means your CPA would be $100 (5 * $20).
Pretty simple right? But what if instead of 5 people converting on that offer, 20 people convert, but they all purchase at different prices! For example, three purchased at $50 each, two purchased at $10, and one purchased at $150 - What's your CPA then? Well, it depends on what your goal is with advertising.
Difference Between CPC, CPM, and CPA
The key difference between CPM, CPC, and CPA is the revenue model. CPM, or cost per mille (thousand), is based on the number of impressions or times an ad is shown to a user. This can be on a cost-per-impression basis or cost-per-thousand-impressions basis. CPC, or cost per click (literally what it stands for), only charges when someone clicks the ad.
The main difference between CPM and CPC is whether or not a client pays based on impressions. A CPC model charges when a client clicks on an ad; however, it's only charged if a user takes that action.
The final model to mention is CPA. A cost-per-action (CPA) model can be one of two different ways. Some platforms charge a client on an actual cost basis when the desired action occurs. For example, if you want to raise awareness for your non-profit and make sure that people find you on Facebook (which is not always guaranteed), then a CPA campaign could help you achieve that goal.
It charges when your desired action occurs — like making sure someone finds your brand via search — or at least by a period determined by a platform's settings.