Advertising Glossary: CPM vs. CPC vs. CPA

If you’ve ever purchased online ads, there is a good chance that the cost of advertising was given to you in either CPM, CPC or CPA. Unless you’ve worked in the advertising industry, or have prior experience buying ads online, you might not have known what these similar-looking acronyms mean. But having an understanding of these methods of calculating the cost of advertising will help you understand where your ad dollars are going, and could also save you a few bucks.

In today’s installment of Digital Ad Academy, we’ll look at each of these pricing techniques and how they differ from each other.

Cost per…

Each of these acronyms start with the same two letters, “CP,” for a reason: The corresponding phrases all start with the same two words: “Cost per.” When ads are bought and sold, an advertiser is paying “per” the number of times an ad is viewed, the number of times and ad is clicked or the number of times a user purchases something after they’ve clicked the ad. There are other ways to buy ads, but these are the most common.

CPM

Believe it or not, the “M” in “CPM” does not stand for “million.” No, that would make too much sense. CPM is “cost per thousand,” with M being the Roman numeral for 1,000. While we don’t believe the Romans were selling ad units on tablets by this measure, CPM is one of the oldest ways to buy and sell ad inventory, and it’s still the most common method used today.

In online adspeak, CPM refers to the amount of money it costs for an ad to be served 1,000 times. So if a publisher is selling ads at $5 CPM, it would cost an advertiser $5,000 to receive 1 million ad impressions.

CPC

When you purchase ads by CPM, you are guaranteeing that your ad will be viewed a certain number of times. But what if you want more than just views? What if you want to make sure your ad is being clicked on as well? For this reason, ads can also be purchased by CPC, which is “cost per click.”

Some online advertising services, such as Facebook and Google, give you the option to buy ads by CPM or CPC. When choosing CPC, an advertiser is telling a publisher, “I’m not going to pay you anything unless my ad gets clicked.”

So if you purchase ads at a $5 CPC, with a $1,000 budget, then you are expecting to get 200 clicks throughout the course of your advertising campaign.

CPA

Clicks are great, but what if you want users to do something else after they’ve clicked through? When clicks aren’t enough, advertisers purchase ads on a CPA basis. CPA, in the world of advertising, has nothing to do with accountants. It means “cost per action” or “cost per acquisition.”

In a CPA deal, the advertisers are paying for each time a user takes a specific action because of the ad. This action could be anything a newsletter sign-up, to a tweet, to a purchase (hence “cost per acquisition”).

This type of deal can be risky to bloggers and publishers, though, as the conversion rates (how many people took the ad’s desired action) is largely based on the ad’s creative and the advertiser’s own web site.

Sponsorship

At Blogads, we sell our standard blogad units on a “sponsorship basis,” which is by time period rather than any of the methods described here. That said, we realize that CPM and CPC aren’t just purchase methods but important success metrics, so we provide real-time CPM and CPC for all Blogads campaigns.