Advertisers have a number of different ways of paying for paid media campaigns. We’ll discuss 5 here:
CPM. Cost per thousand impressions. Quite simply, you are billed based on the number of times your ad is shown. If the publisher is billing at $5 per thousand impressions and your ad is shown 5000 times then you will pay $25.
CPM is most risky for the advertiser, since it’s possible that your ad will not even be clicked on by users. Additionally, the definition of an impression can be inconsistent across publishers. If you are running a CPM campaign, make sure that you see where the ad is placed and who exactly is seeing the ad.
CPC or PPC. Cost per click or Pay per Click. A cost per click model means you are billed every time someone clicks on your ad. Depending on how targeted your ad is, your cost per click can vary greatly.
Cost per click advertising is less risky for the publisher than CPM, because you don’t pay if you don’t get clicks. But you still have to ensure that your clicks are converting into engaged users.
CPI. Cost per install advertising. This is exclusively for mobile apps, although there are advertising models on the web where advertisers pay for a signup for a web app.
CPI advertising is less risky than cost per click advertising as there will be some drop off from a click to an install, but it’s still imperative to make sure users who install your app convert into engaged users. If a particularly publisher is sending you highly unengaged users, then the amount you are paying for an install is irrelevant.
CPL. Cost per lead advertising generally means you are paying a fixed amount for an email address of a potential user. Like cost per install advertising, measure how well leads convert when you contact them.
CPA or CPE. Cost per action or cost per engagement. Cost per engagement advertising means you only pay when a user does a certain action in your app or site. In some cases, advertisers only pay publishers if the user converts to a paying customer.
CPA campaigns are the least risk for an advertiser. You don’t really care where the ad is being shown, who is clicking or if they’re signing up, and you are getting a direct ROI on your investment. Publishers typically do not want to run CPA campaigns, since the risk for them is quite high.
Regardless of how you are being billed, it’s crucial that you track advertising campaigns through the entire funnel. You should know the Cost per thousand impressions, Cost per Click, Cost per install (if you have an app) or cost per signup, and most importantly, cost per engagement of your ad. True performance based advertising means that you know the ROI on your advertising spend.