CPM vs. CPC vs. CPA

by | Jul 26, 2019 | Guides

CPM, CPC and CPA are three distinct models for digital advertising that can make or break a campaign. Everyone likes the idea of paying less, but if you optimize your campaigns to lower the wrong one of these three, you could set your campaign up for failure — no matter how great your strategy or creative.

Here is what you need to know CPM, CPC and CPA to make sure you’re optimizing correctly.

CPM 

 

What It Is

Cost per mille (CPM) measures the cost of one thousand impressions (mille is “thousand” in Latin). It’s how you measure the amount of people who see your ad. For example, a $2 CPM means that it costs $2 to put your ad in front of 1000 people.

Setting the Right KPI Expert Guide Subhead: Educate

Out of the three, CPM has the most history and is perhaps the most misunderstood. Let’s dive in.

Funnel Fit

CPM fits best in top-funnel awareness initiatives. It can inform strategy elsewhere, but at its core it’s a measurement of how many people have seen your ad. 

Its history lies with traditional advertising strategies. In the old days (i.e., early to mid-90s) display ads were bought and sold in a similar fashion to billboards. As real-time bidding (RTB) technology emerged, CPM became a relied upon model to buy and sell advertising inventory both because it matched the technological development of its day and because it was easy to understand.

CPM is great for raising awareness among your target audience. A good use case would be a city government spreading the word that a bridge will be closed for construction. A low CPM will mean you’re paying less for more people in a specific geographic area to see your message. 

 

Things to Keep In Mind

If you’re looking for conversions in your campaign, you’re almost always better off not optimizing for a low CPM. If you shoot for the lowest CPM possible, your ad will land in junky inventory that is not likely to convert viewers. 

If you’re looking for donations, for instance, a dirt low CPM will not put you in front of people likely to donate. It will put you in front of whoever it can, leading to a lot of wasted money, bot traffic and fraud.

For more, read Nate’s article on When to Use CPM and When Not To.

CPC 

 

What It Is

Cost per click (CPC), also known as pay per click (PPC), measures the … cost per click. Pretty self explanatory, but there are nuances to be aware of as you use it in modern campaigns.

CPC is where you only pay when a user clicks your ad. You don’t pay for people to view your ad like you would with CPM.

Setting the Right KPI Expert Guide Subhead: Educate

Funnel Fit

Generally, CPC is best for mid consideration to low conversion funnel strategies. Like CPM, it can inform strategies elsewhere, but it’s best fit is mid- to low-funnel.

At its core, CPC provides insight into the effectiveness of your ads. By optimizing for a low CPC, you’re lowering the amount of money you pay to get someone to click your ad.

A low CPC means you’re paying very little for a lot of traffic. In other words, your ad is effective at getting people click. 

CPC has its origins in early paid search advertising in the mid-90s. It was one of the first precursors to RTB technology as we know it today. As such, it’s deeply ingrained in many campaign strategies but has its own pitfalls as well.

 

Things to Keep In Mind

When you optimize for a low CPC, you’re putting your ad on sites and in search positions where people are most likely to click. These types of sites, though, can be fraught with fraud and bots. Brand safety is always a must, but CPC should not be considered without taking fraud into account.

Another thing to keep an eye on is the relationship between clicks and website sessions. If a person clicks your ad shouldn’t it lead to a website session? Not necessarily. 

For more read Shane’s article, Why Don’t the Number of Clicks Equal the Number of Website Sessions.

CPA

 

What It Is

Cost per acquisition (CPA) measures the cost of one person converting. This could mean form fills, demo requests, sales, etc. Whatever counts as a “conversion” for your business.

CPA is a step further from CPC because you only pay when someone takes your desired action. If a person sees and clicks your ad, but doesn’t convert, you don’t pay.

Setting the Right KPI Expert Guide Subhead: Educate

Funnel Fit

CPA is a solid bottom-funnel strategy. It’s the get stuff done approach. Like CPM and CPC, it can inform other strategies, but at the end of the day it’s focused on driving conversions.

Because it’s so far down the funnel, CPA provides not just insight into the effectiveness of your ad, but insight into the effectiveness of your website copy, forms, conversion strategy, etc. 

Optimizing for CPA is more nuanced than optimizing for CPM and CPC. It’s about creating an environment the user finds convincing. This could mean anything from tweaking website copy to changing around the order of form fields to swapping ad creative. 

It requires you to put on your marketing detective hat and think about the psychology behind your message and how it’s positioned. Once you get an eye for it, you’ll become a better marketer across the board.

A low CPA means you’re paying little for a lot of conversions. This in turn means your CPM is probably pretty high because you’re only targeting people that are likely to convert.

If you do achieve a low CPA, you know you’ve nailed your targeting, messaging and strategy for driving conversions.

There’s a lot to glean from using CPA but it’s not necessarily better than the others. It still has its caveats.

 

Things to Keep In Mind

CPA is so bottom-funnel that it can be hard to gain insight into anything mid- to top-funnel. If you’re looking to get attention and spread the word about something, CPA is probably not your best bet. You would be better with CPM in this case. 

There are also a lot of factors that go into CPA, so understanding what exactly needs to change in order to optimize your campaign can require some trial and error. 

 

CPM, CPC and CPA all have their distinct place in your digital strategy. Understanding the role they play, their strengths and weaknesses is essential to becoming a better marketer. 

 

For more information on how to properly use CPM, CPC and CPA along with just about everything else digital advertising, subscribe below.

 

 

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