One of the most popular forms of online marketing is Pay Per Click (PPC) advertising. These are the ads that you see on the right hand side of websites such as Google and Facebook. The way that they work is that the advertiser chooses a set of parameters that need to be met in order to trigger their ad being displayed. In the case of Google ads are triggered by users conducting searches for specific queries. In the case of Facebook ads are triggered by a user matching specific criteria such as age, location, gender and interests.
What are CPC and CPM?
When you are setting up a PPC campaign you are usually given various options on what you wish to be charged for. The two most popular are Cost Per Click (CPC) and Cost Per Thousand impressions (CPM). First time advertisers are often confused as to which offers best value.
In the case of CPC you are only charged each time a user clicks on your advert while with CPM you are charged for each thousand times that your advert is displayed. Each time your advert is displayed it is known as an impression. Advertisers also set a daily budget and a duration that their ad will run for in days. This means that when your budget for the day has been spent your advert will stop running until the following day. CPM is usually charged at a higher rate than CPC.
Click Through Rates
You also need to be aware of your Click Through Rate (CTR). This is a percentage that is calculated from the number of clicks against the number of impressions. So if your advert was displayed 10000 times and was clicked on 400 times then your CTR is 4% (400/10000 x 100).
Which is Better Value, CPC or CPM?
Every advertiser wants to get the best ROI that they can from their ads and this leads to the common question of which provides better value, CPC or CPM? I will use a fictional example to show how by measuring an ads success you can calculate whether to use CPC or CPM for your Pay Per Click advert.
A company creates an ad and they select the parameters that will trigger the ad. The projected costs are £2.00 per click or £5.00 per thousand impressions and the company sets a daily budget of £50.00 per day. This means that using the CPC model the company can expect up to 25 clicks per day and with the CPM the advert will be displayed up to 10 000 times per day.
This is where knowing your Click Through Rate is so important. In order for your advert to be most cost effective using CPM then you need to gain at least 26 clicks. If your advert will receive 10 000 impressions then your Click Through Rate must be at least 0.26% in order for it to be more cost effective than using Cost Per Click. This is based on the following calculation (26/10 000 x 100).
Measure and Refine
You should always measure the success of all your online activities in order to identify what is working and what is not. If you start a Pay Per Click campaign then I would suggest you start by using Cost Per Click. This means that you are only paying for what is in effective a qualified lead. You may find that your advert does not generate high click through rates to start with and so you need to look at refining the headline and body text of your ad. As your click through rate increases you need to be aware of the point at which it will become more cost effective to switch to CPM. Once you hit that point then transfer the ad to CPM instead.
By keeping a track on your Click Through Rates and the cost of using either Cost Per Click or Cost Per Thousand impressions then you are helping to ensure that your Pay Per Click campaign is as successful as possible.