What is CPC, CPM, CTR, CPA and How it affects Online Advertising?

CPC, CPM What Do these Stand for, Anyway?

In the world of online advertising, there are many acronyms. Some acronyms are similar, and some acronyms have different meanings. Here's a simple guide to what each of the most common acronyms mean, and how they can affect your online advertising campaign.

One of the first terms used in advertising metric is CPM. It stands for Cost Per Thousand, with 'M' being the Roman numeral for thousand. It comes from traditional advertising, where it referred to either the cost to produce a thousand units of something, or the cost to get a thousand pairs of eyes on your ad. In online advertising, CPM means the cost per thousand impressions, or times your ad is viewed. In the early days of online media planning, it's how most online campaigns were bought.

CPC stands for Cost Per Click, or how much it actually costs to get someone to click on your ad. In a CPM campaign, you would have to take the number of impressions you bought and how much it cost, then divide that cost by the number of clicks the campaign garnered, that would be your cost-per-click. With CPM campaigns, you would also want to find out your CTR, or Click Through Rate, which you would get by dividing the number of impressions by the number of clicks you got; the result would be expressed in a percentage form.

Your CPC in a CPM campaign was never guaranteed, you would negotiate and pay for a certain amount of impressions, but the advertising provider wouldn't guarantee you any results. Then some marketers decided to start selling advertising on a CPC basis, meaning you only paid for the ads that got you results. You could have 10,000 impressions, but you only paid for the 500 clicks you got. This quickly became the preferred way to buy online advertising.

Now, CPM campaigns are only used in some instances where the audience is so targeted that it makes sense to buy CPM rather than CPC and is less expensive. Because of the targeted nature of the audience, the CTR of the campaign will be much higher than the average. One such example is when you use something like AdWords Digger to maximize your AdSense campaign.

Another acronym commonly used is CPA, or Cost Per Action, it's also sometimes referred to as Cost Per Acquisition. Campaigns are not bought on a CPA basis, but it is a useful tool that marketers use to track their bottom line and to relate their online advertising campaign directly back to sales.

For example, a marketer may have an advertising budget of $1000. To be profitable campaign, he decides he must sell 40 of his products, making his CPA $25. If he sells 50, then his CPA is $20, making the campaign even more profitable. If he only sells 20, his CPA is $50, and he should rethink his advertising strategy.

Now, let's put those terms into practical use.

Most often when you're starting to market on the web, your journey starts with Google. You can run several different kinds of campaigns, search results, search partners, Google Content, and placement targeting through their Adwords programs.

Search results are always bought on a CPC basis. You bid on your selected keywords, deciding what your maximum bid would be. You then manage your campaign on an ongoing basis, as the cost for keywords can constantly fluctuate, depending on its popularity. Because of the upsurge in CPC advertising in recent years, costs have skyrocketed.

Placement targeting builds upon Google Content campaigns, which marketers refer to as AdSense, the name of the program which runs the advertising on these sites. As mentioned above, using targeting software, such as AdWords Digger makes these campaigns even more effective. It searches and ranks sites based on your criteria, from which you can then choose and import into your AdWords placement targeting list.

Knowing what each of the acronyms mean is an important part of learning how to market effectively online. While it may seem confusing at first, knowing these terms and the methodology behind them can only help improve the success of your online advertising campaign.

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