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Online Advertising Models

In: Business and Management

Submitted By kenzaa
Words 1695
Pages 7
CPDC

The CPDC (Cost per Double Click) designates the amount paid to the affiliate for a click on a link or on an advertiser's graphic element, followed by another click on the advertiser's site.

CPM

CPM stands for cost per thousand impressions (M is the Roman numeral for a thousand). This means the advertiser pays for every thousand times the advert loads on the publisher’s page. This is how a campaign is normally priced when brand awareness or exposure is the primary goal. The advertiser and the publisher negotiate a fixed amount that the advertiser will pay for every 1,000 times an ad is shown. CPM is a very simple payment scheme, assuming the two parties can agree on a method for counting impressions. There are often stipulations in the agreement, such that the ad can only be shown on certain pages of the publisher’s site, or can only be shown on pages with a limited number of other ads.

In a CPM relationship, the publisher is primarily concerned with maintaining a high-quality audience that has well defined interests or characteristics. The advertiser is primarily concerned with creating a message that will be noticed by their target audience, because they pay for the impression whether or not the user actually sees the ad. In general, the more knowledge a publisher has about a particular audience, the higher the CPM that can be charged, because the advertiser is able to more clearly know who their message is being delivered to.

One prominent weakness of CPM advertising lies in the fact that the advertiser is only getting value if the user actually sees the ad. If the user doesn’t notice the ad on the page, the money the advertiser paid is wasted.

Another weakness is that it is difficult for an advertiser to prove that they are getting the desired value from the advertising. Since the goals of many CPM campaigns are not clearly defined, it can be difficult to measure results against them.

| |Advantages |Disadvantages |
|to publishers |CPM revenue can be more predictable since publishers likely |Publishers may need to offer rich media advertisements, such as |
| |know their average page views in a given month. |interactive games, videos, and pop-outs, to help advertisers get|
| | |value from impressions. |
| |CPM—more than CPC, CPA, and CPL—lets advertisers reach a | Publishers need to demonstrate that their website traffic |
| |large number of people. Advertisers interested in brand |offers value since there may not be a direct connection between |
| |awareness over the immediate sale may prefer publications |the advertisement and the return on investment |
| |that offer this model. | |
| |CPM puts lower requirements on your publication. As long as | |
| |you display advertisements to your audience, you are | |
| |completing your part of the relationship. | |
|To the advertiser |The advertiser knows exactly how many times the banner will |Very weak performance matrix, very weak correlation with sales |
| |be shown, and what would be his daily / total costs |or leads |
| |Common model when buying media against a speci c URL / site |No indications for the advertiser on banner, campaign or media |
| |/ ad spot. |quality. |
| |CPM is being prioritized rst by ad-networks since the |When dealing with multiple sites or ad spots advertiser might |
| |publisher knows |receive cheap media instead of effective media. |
| |exactly what the expected revenue per impression is. | |
| | |Effective frequency capping is unknown. |

Example :

In a campaign , say an Ad of 728×90 is running and the CPM set is $5 and the impressions to be served is 2,00,000 , what will be the actual cost to the advertiser ? The formula for CPM goes this way :
Cost to an Advertiser = CPM x (Impressions / 1000) using the above metrics :
Cost to an Advertiser= 5 x (2,00,000/1000) = 1000
So , $ 1000 is what the advertiser has to pay !
When CPM needs to be calculated : use the final cost.
CPM = Cost to an Advertiser x 1000 / Impressions .

CPC

Another model, which has become quite popular in recent years, is CPC advertising. CPC stands for cost per click. This means that the advertiser pays only when their advert is clicked on by an interested party, regardless of how many times it has been viewed.

In a CPC relationship, it is now the publisher’s responsibility to ensure that the right advertisement is shown to the right audience. The advertiser is still responsible for crafting a message that will appeal to the target audience.

| |Advantages |Disadvantages |
|to publishers |You may be able to draw more advertisers with CPC than CPM |CPC revenue is less predictable than CPM because you can’t be |
| |because the return on investment is more measurable |certain how many people will actually click. |
| |Publishers can collect more data with CPC to use in selling |Clicking advertisements may take visitors away from your website.|
| |ads. For example, you can track average click-through rates |This is particularly a concern on mobile devices, where changing |
| |(the number of times ads are clicked divided by the total |sites may be more distracting to visitors. |
| |impressions) to set your advertiser’s expectations. | |
|To the advertiser |The advertiser knows exactly how many times his landing page |Weak correlation with Sales or Leads |
| |/ site will be clicked, and what would be his daily / total | |
| |costs. | |
| |The banner will be shown until enough clicks are being |Dependable on click tracking technology and measurement |
| |generated | |
| |Common model when looking for exposure with no direct lead or|Advertiser might receive cheap media instead of effective media |
| |sale goals | |
| |Reasonable indicator for banner quality |Weak performance matrix, vulnerable to click frauds |
| |CPC is optimized quiet fast by optimizing ad-networks to |No indication for campaign quality (only banner quality) |
| |generate high CTR | |

Example :
Suppose a campaign having 300×250 size banner running at CPC of $2 and the number of clicks the Ad has got is 1000 , what is the amount that the advertiser has to pay actually ?
The formula for CPC goes as below :
Cost to an Advertiser : CPC x number of clicks using the above metrics ,
Cost to an Advertiser = 2 x 1000 = 2000
So , $ 2000 is what the advertiser has to pay !
CPC = Cost to an advertiser / number of clicks
Also , Cost = Impressions * CTR * CPC.

CTR CALCULATION :
CTR is click through rate , it measures the effectiveness of any advertisement . It is calculated by using a simple formula as below :
Example :
A campaign having 728×90 Ad has served 10,000 impressions and has generated 100 clicks so what will be CTR of that Ad ?
CTR = (number of clicks / number of impressions) x 100 using above metrics ,
CTR = (100/10000) x 100 = 1 %
1% CTR means on every 100 impression there is one click.

CR CALCULATION : CR is conversion rate , to calculate the conversion rate a simple formula is used :
CR = (number of conversions/Impressions) x 100 , so if number of conversion made are 20 in 1000 impressions , the conversion rate will be (20/1000)*100 = 2 %

CPA

CPA refers to cost per action or acquisition. This model means that the advertiser pays only when an advert delivers an acquisition after the user clicks on the advert. Definitions of acquisitions vary depending on the site and campaign. It may be a user filling in a form, downloading a file or buying a product. CPA is often the best option for advertisers because they pay only when the advertising has met its goal. For this reason, it is also the worst type for the publisher, as they are rewarded only if the advertising is successful. The publisher has to rely on the conversion rate of the advertiser’s website, something that the publisher cannot control. The CPA model is not commonly used for banner advertising and is generally associated with affiliate marketing.

| |Advantages |Disadvantages |
|to publishers |The very-limited risk that advertisers face can make CPA |Revenue is much less predictable than in CPC and CPM unless you|
| |easier for publishers to sell than CPM and CPC. |establish contractual thresholds that ad sales must meet. |
| |Creating an effective CPA program requires an investment |Publishers may need to give significantly more time and |
| |of time and resources from both advertisers and |expertise towards making the advertising program successful. |
| |publishers. This can keep advertisers tied to an ad sales |You might even be responsible for the daily management of when,|
| |program longer. |where, and how ads run for advertisers. |
|To the advertiser |The advertiser pays according to results only |Publisher will not allocate premium media for questionable |
| | |pro-t |
| |The banner will be shown for unlimited period of time |Publisher will refuse to work in this model when cpm / cpc |
| | |models can -ll his inventory |
| |High correlation between sales and campaign and banner |Dependable on conversion tracking technology and measurement. |
| |quality. | |
| |Low vulnerability to frauds. |Hard for the publisher to estimate when to stop a campaign |

Example :

Suppose CPA is $5 , number of impressions is 10,000 , CTR is 3% and CR is 2%.
Cost to an advertiser = CPA x ( Impression x CTR X CR ) using the above metrics ,
Cost to an advertiser = 5 x ( 10000 x 0.03 x 0.02 ) = $30
Similarly , if you know the actual cost , we can easily calculate the CPA for the Ad using the below formula :
CPA = cost to an advertiser / ( Impressions x CTR x CR )
Also , Average Cost Per Acquisition (CPA) = Average Cost per Click / Conversion Rate

Conclusion

So the question is still valid: CPM, CPC or CPA? The answer, predictably, is – it depends. Firstly it depends on the advertisers’ goals and budget. For instance, if the advertiser wants brand awareness along with clicks and has a strong budget, CPM is the right system. On the other hand, if the advertiser wants results with the least money possible, it may opt for a CPC or a CPA system.

Secondly, it depends on the advertising market. Par example, a publisher can set a Cost Per Mille impressions so low that will attract the advertisers that wouldn’t otherwise buy ads in this system. On the other hand, the attractiveness of the CPA comes with… a cost. Very often the Cost Per Action can be very high, leading the advertiser towards CPC system or such.…...

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