Ad Tech & Ad Ops

Understanding CPC vs CPM for Ad Publishers

When it comes to buying online ads for your business, the most popular pricing models are CPM and CPC. We hear the question, “Which one should I use?” a lot. Before answering that, let’s define what each of these cost models means. If you’re looking for what differentiates the two pricing models, you’ve come to the right place.

What’s The Difference Between CPC And CPM?

CPC stands for “Cost Per Click”. In this model, you pay a set amount every time your ad is clicked. For example, if you were paying $0.40 per click, and your ad is clicked 1,500 times, you would pay the ad network $600 total for your ad. If fewer people click your ad, you would pay less.

CPM stands for “Cost Per Mille”. “Mille” refers to every 1,000 impressions. With this model, you pay a set amount for a network to serve up your ad 1,000 times. This price point is unaffected by whether people click through to your website or not.

What’s the difference between CPC and CPM?

  • CPC (Cost Per Click): you pay when someone clicks on your ad.
  • CPM (Cost Per Thousand Impressions): you pay based on how many people see your ads.

The CPM model is totally different to CPC as your bidding is focused and charged on the number of impressions your advert receives rather than the number of clicks. CPM bidding is charged per thousand impressions your ad receives. Make sure to check out the latest from Honchō’s industry-leading Paid Media team for more great insights.

Cost Per Click (CPC) Bidding

CPC bidding is where you only pay if someone clicks on one of your ads. In most cases, people will generally use CPC bidding as it is designed for the Search Network. It’s also the recommended bidding strategy when trying to drive traffic to your website and you know how much you are willing to pay. Within CPC bidding there are two separate bidding options available:

Automatic Bidding

Where you set a daily budget and Google Ads will attempt to bring you as many clicks as they can for your set budget. You can also set a maximum cost per click to make sure Google doesn’t spend more than you would. If you use automatic bidding I would highly recommend setting a maximum budget for CPC ads!

Manual Bidding

You only pay when someone clicks on your advert but this option allows you to control your maximum bids. You can set bids at the Ad Group level, keyword-level or placement level. I personally like this option as I feel it gives you more control over what you spend per click.

Cost Per Thousand Impressions (CPM) Bidding

CPM bidding is the most common option for advertisers who are targeting the Display Network as this is the best option if you are trying to increase or improve your brand awareness.

One of the downsides of CPM ads is that you could potentially pay for a thousand impressions but receive no clicks to your website.

On the other hand, a benefit of CPM ads is that the display network is solely judged on price so if it has the highest bid it will rank at number 1, whereas CPC bids are judged on CTR, Quality Score and other relevance factors.

Which Is Best For Ad Publisher’s Goals?

Which model is right for you depends on your advertising campaign’s goals. CPC is a good option if your business is an online marketplace or sells products dependent on people clicking through and browsing your website. If what you’re selling is inexpensive or something people could conceivably want to buy on impulse, then CPC could enable you to only pay for those ads that bring direct traffic to your site.

 However, if the product you’re selling is a $25,000 piece of machinery or a hefty investment, direct traffic may not be as important as having a general awareness of your business among people who would be most interested. With CPM, you’re guaranteed a certain number of ads will be shown to your audience since you’re praying specifically for the number of impressions.

Final Thoughts

To summarise, both bidding strategies are different but both have their own benefits and drawbacks. They can be used for different campaign goals such as driving traffic to your site, driving brand awareness or getting sales for your retail business. Something to bear in mind with each pricing model for online ads CPC bidding is mainly used for Search Network campaigns and CPM bidding is primarily used for Display Network campaigns.

FAQ Related to CPC vs. CPM

How Do You Calculate CPM?

When you want to calculate CPM, you’ll work on the cost per 1,000 impressions basis. Here, you’ll simply charge advertisers a flat fee for every 1,000 times their ad is shown. For example, let’s say you charge an advertiser $5 per 1,000 impressions. Regardless of how many clicks the ad gets, with 10,000 impressions, the advertiser will pay you $50.

How Do You Calculate CPC?

When you use CPC, an advertiser will pay you every time someone clicks on their ad (which is displayed on your site). This model differs from CPM in that the advertiser will set a budget and the maximum amount that they’re willing to pay for a click. This is their bid.
An ad network like Google Adsense then compares their bid to the bids of other advertisers and if their bid is competitive, the ad network will show their ad until their complete budget is used up.

How Are Publishers Paid with an Ad Exchange?

Ad exchanges allow billions of impressions to be bought and sold in real-time using an auction process. As such, the buying and selling process is based on bidding. Publishers can set the prices they’ll accept for each impression. They can also set the criteria for the types of impressions that they want to buy and sell.
Advertisers then bid on these impressions and compete with one another for every impression. As a result, the auction drives up the price of the ad space. 

Write A Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.