CPC/PPC Advertising – When to Use It, and Some Quick Math Tips To Convert to a CPM Measurement

CPC (Cost per Click) or PPC (Pay Per Click) are terms used for a particular form of advertising that has been very popular in the online market the past 10 years. What these terms refer to is a form of advertising where the advertiser is only charged on a per-click basis, with the price charged per click either predetermined, or on a sliding scale that you agree on with the publisher or ad network. Example -- you may purchase a certain category of advertising, like restaurants, and pay $0.50 per click, or you might use an online auction (like AdSense does), and pay a certain range, say $0.25-$0.50.

This is called an online auction style of pricing, and what you pay directly affects your positioning on the page. The more you pay relative to other advertisers, the better your position, or the higher up on the page you will appear. Example -- you pay the high end of the range, and you appear at the top of a search engine's results. The range you are willing to pay also affects how often your ad is likely to appear, so you may find that for popular categories, if you do not pay a high enough range, you may not show up at all, as other advertisers will out-bid you.

PPC advertising is useful for a specific kind of advertiser -- a business that is interested in only paying for leads, an advertiser that is more focused on ROI (Return on Investment). This is different than a branding advertiser, who does not care as much about how many people click on the ad so much as they care about how many people see the ad. For a branding advertiser, having to compete per click and pay a high price per click does not make sense -- they would much rather buy advertising impressions on a CPM basis, which ends up being more affordable in most cases.

Examples of advertisers that PPC advertising does make sense for are small businesses, businesses with web sites that sell products, or businesses for whom leads can very quickly become long-term customers, or have a higher payoff. For a restaurant, paying $1 per click might make sense if a certain percentage of those people end up coming to the restaurant and spending $40 on average -- from their point of view, they might even end up with a customer who spends hundreds or thousands of dollars with them over their lifetime, making a $1 CPM a very affordable proposition for their marketing efforts.

Finally -- If, as a small business, you are in the market for different kinds of advertising, you may find yourself with the choice of paying per click, or for paying per thousand impressions (CPM). Because of this, it is important to be able to gauge your CPC/PPC efforts and be able to convert that to a CPM or ECPM (effective CPM) number.

Here is how you do this:

Let's say that you have paid $20 in a month for 100 clicks at an average of $0.20 per click, and the ad was shown 10,000 times. So divide the revenue over the number of thousands, and this will get you your CPM or ECPM. In this example, $20/(10,000 X 0.001) = $2 ECPM. That is not a bad rate, but you can play with the numbers to see what it would be if you paid more per click (the CPM would go up), or if your ad showed more often at the same price (the CPM would go down).


Source by Glenn T Highcove

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