CPM, CPC, CPL, CPA and CPI are super popular marketing acronyms used and mentioned on every corner. Terms like Cost per Click, Cost per Lead or Cost per Impression often become the company’s KPIs for their unique ability to determine marketing activities profitability.
Why is it important to understand the efficiency of advertising campaigns and the distribution of marketing efforts?
Because if you don’t know how to work with marketing numbers and do not monitor them on a regular basis, you may suddenly realize that the cost of advertising exceeds the income or that the marketing agency that you hired is not working efficiently. Defining strong KPI (Key Performance Indicators) like CPM, CPC, CPL, CPA and CPI prevents that.
CPM, CPC, CPL, CPA, & CPI Advertising Models
When choosing which Key Performance Indicators to track its important to understand their definition, what do they mean for business and what are the differences between each. Let’s take a deep look at these mysterious acronym creatures and find out what they mean in the underlying section.
CPM (Cost per Mille)
What is CPM? CPM advertising is a cost you pay for a thousand (mille from Latin) impressions your ad gets exposed to. It comes from traditional television, radio and newspaper marketing, where to calculate CPM you’ll have to take the whole campaign budget and divide it by the number of impressions (expressed in thousands) it generated.
In online marketing CPM is mostly used for banner advertisement and for comparing different media budgets – say, blog post to influencer video ad – to see which one offers a better deal for a thousand impressions. But don’t forget – you are buying a thousand eyes on your ad, but it doesn’t determine how many people out of that thousand are actually interested in what you have to offer.
Quantity does not always mean quality, so use the CPM advertising metric only in conjunction with other performance indicators, like CPL, to really understand the efficiency of your media buying efforts.
Formula: Total campaign cost / Thousand impressions
Cost of an advertising placement divided by the number of impressions (expressed in thousands) that it produced.
What is CPC marketing, you ask? CPC advertising is a media buying model in which advertisers are charged only when the actual click on the ad has been made. Cost per Click represents the highest amount you are willing to pay for a single click, but oftentimes you’ll be charged less according to your website’s quality score, which includes relevance to the user, Click through rate (CTR) and landing page quality.
Advertisers often prefer CPC strategy to, say, CPM marketing, described above, because with CPC you actually pay only when the user is interested enough to know more about the product.
Thanks to this, CPC advertisement is one of the most cost-efficient and popular media buying methods used in Google Ads, Youtube Ads, Bing Ads, Facebook and Linkedin Ads and other Pay per Click advertisement platforms.
Formula: Total campaign cost / Clicks
Cost of advertisement money spent divided the number of clicks it produced.
Now that you’ve read about CPM and CPC, you’ve probably already guessed what is CPL all about. Cost per Lead, or CPL marketing, is a media buying model where the advertiser pays for information on a potential client (i.e. lead) interested in their services.
CPL advertising is generally bought from Cost per Lead services that offer a list of prospective clients with their names and personal information such as phone numbers or email addresses. CPL marketing is often utilized by companies in order to build their customer base or remarket to an existing one, by using an acquired Cost per Lead information as databases for email newsletters, reward and loyalty programs, advertisement campaigns etc.
Formula: Total campaign cost / Leads
Cost of advertisement money spent divided the number of leads it brought.
CPA, which stands for Cost per Action, or Cost per Acquisition, is a buying model where advertisers pay only if a certain desired action – sign-up form completion, subscription or sale – has occurred. This is one of the safest methods of driving sales through buying media on the market of today, as it presents as low risk as possible.
With CPA advertising and CPA site solutions, you only pay for what you get – if the potential customer fails to complete the purchase you are free of any costs for efforts it took the CPA service to bring the customer in the first place.
In a way, CPA marketing is similar to that of CPL, described in the paragraph above, although with CPA you pay for an actual sale as opposed to receiving an interested customer willing to make a purchase.
Formula: Total campaign cost / Action
Cost of advertisement money spent divided the number of actions it produced.
Last but not least – Cost per Installation! What is CPI marketing? CPI is a media buying method where advertisers (quite often app developers) only pay if their application has been downloaded. Many if not most app business owners and app marketing managers are choosing CPI advertising over other paid marketing models.
Just like with Cost per Action described above, with Cost per Installation you pay only in the event your application has been installed, which seems like a safe media buying method. But beware – you can find a reputable vendor who chooses users that will actually use your app, or a scam vendor who will offer in-app rewards like +50 coins if the user downloads your app, which they will probably most likely later delete.
Some vendors will even drive bots who will download your app and then delete it to make room for new ones, while you will be thinking you are paying for actual living things enjoying your app.
Formula: Total campaign cost / Installation
Cost of advertisement money spent divided the number of downloads it produced.
While each of these marketing models – CPM, CPC, CPL, CPA and CPI – is different, it’s important to know them all in order to make the right choice for your budget allocations. What works wonders for one business model will completely destroy the other one – it’s all about the right fit.
If you are a politician running a new election campaign it makes sense to focus your marketing efforts on Cost per Impressions (CPM) advertisement, as the end goal is to reach a broad audience without filtering viewers by any specific preference.
But if you are a high-end B2B model, you will likely benefit more from a highly-targeted CPL or CPA campaign, which will focus on reaching individuals who are profoundly interested in your unique offering. And remember that when you need help setting up, analyzing or optimizing your campaigns – we’d love to help you 😉