Digital advertising has become an essential component of marketing campaigns for businesses of all sizes. Two of the most common pricing models used in online advertising are CPC (cost-per-click) and CPM (cost-per-thousand impressions). Understanding the differences between CPC and CPM can help inform smarter budgeting and strategy when planning and executing ad campaigns.
This comprehensive guide provides an in-depth look at CPC vs CPM, how each pricing model works, and when each one makes the most sense to drive results.
Before diving into the specifics of CPC and CPM, it’s important to understand the fundamental differences between these two dominant pricing models in digital advertising.
The main distinguisher is that CPC billing is dependent on clicks and user actions, whereas CPM billing is based on impressions and exposure. This leads to fundamental strategic differences in how campaigns are planned and optimized under each model.
CPC or cost-per-click advertising is a performance-based pricing model where advertisers pay a set amount each time a user clicks on their ad. The amount paid is determined by the advertiser's maximum bid price for a click and the total competition from others bidding for the same ad placement.
In CPC campaigns, advertisers bid for specific keywords or phrases relevant to their target audience. For example, a sports retailer may bid on keywords like "basketball shoes", "running socks", or "treadmills". The highest bidder for a given keyword will have their ad appear most prominently in search results pages or other inventory when that keyword is searched.
Advertisers set a maximum CPC bid amount representing the highest price they're willing to pay for a click. The actual CPC paid will depend on the minimum amount required to hold an ad position and competition from other advertisers. Maximum CPC can be adjusted to increase or decrease priority.
Each time a user clicks on an ad in a CPC campaign, the advertiser pays the amount required to maintain the ad position at that moment. The CPC paid will vary based on competition, keywords, match types, and other factors. More competitive keywords will command higher CPC.
Since payment occurs only when users engage with the ad, the focus is on converting those clicks into valuable actions like signups, purchases, email subscribers, etc. CPC success is measured by conversion rate, ROI, and other direct response metrics.
CPC advertising is ideal for those with a defined goal and looking to drive specific user actions once on-site. Effective use of negative keywords, landing page testing, and bid adjustments can maximize conversion performance.
CPM or cost-per-thousand impressions is an awareness-based model where advertisers pay based on the number of times their ads are displayed. The cost is determined by the bid price for every 1000 impressions served in environments relevant to the target audience.
In CPM campaigns, advertisers bid for ad placements where their target audience will be viewing content. This includes bid prices for publisher websites, social media platforms, mobile apps, connected TV, and other digital channels.
Advertisers set the maximum CPM or cost-per-thousand-impressions they are willing to pay. The actual CPM paid will depend on the minimum required to maintain that ad placement and competition from overlapping audiences. Higher demand ad slots will command greater CPM rates.
Payment is triggered each time the ad loads on a user's screen, which counts as one impression. At intervals of 1000 impressions, the advertiser is charged the CPM bid price. 10,000 impressions would generate a charge of 10 times the CPM bid.
Since it operates on an impressions-served basis, CPM advertising focuses on driving reach and repetition to increase exposure. Success is measured by reach, share of voice, and brand lift among exposed audiences. Effective frequency caps, targeted audience creation, and inventory management maximize campaign impact.
CPM advertising suits advertisers looking to boost awareness, consideration, and engagement broadly with relevant audiences. It can influence consumer behaviour throughout the purchase funnel before driving traffic further down the line.
In addition to CPM, CPC is also commonly compared to CPA advertising. Here's an overview of the differences between CPC and CPA pricing models:
Under CPA, advertisers only pay when a conversion occurs, such as a sale, signup, etc. This transfers risk away from the advertiser while incentivizing the ad platform to drive genuine conversions through optimization. CPC does not guarantee performance, while CPA pricing ensures the measurement of the true conversion value.
CPA and CPM represent opposing sides of the digital advertising spectrum. Here's an overview of how CPA compares to CPM:
CPA guarantees measurement of conversion value and returns on ad spend. In contrast, CPM simply measures impressions and exposure, not direct response. CPA incentivizes publishers and platforms to optimize for conversions, while CPM optimization focuses on reach.
So when should you use cost-per-click vs cost-per-thousand impressions? Here are some best practices:
Assessing campaign objectives and KPIs can dictate ideal pricing models. Both CPC and CPM can drive impact and have merit based on strategy.
Here are some top tips to maximize results for CPC and CPM campaigns:
For CPC
For CPM
A: CPC stands for cost-per-click, a digital advertising pricing model where advertisers pay each time a user clicks on their ad. CPC is used in search, social, and other platforms.
A: CPM means cost-per-thousand impressions. It is a pricing model where advertisers pay based on the number of times their ads are displayed to users in thousands of impressions.
A: CPC aligns ad costs directly with clicks and conversions generated, only paying when users engage. It allows granular optimization for direct response through tactics like keyword bids and landing page testing.
A: CPM advertising allows advertisers to pay based on exposure and reach among target audiences. It focuses on building awareness and engagement rather than direct response. CPM can influence users higher in the purchase funnel before driving clicks with CPC.
A: Neither model is inherently better. CPC is ideal for direct response goals like lead gen or sales. CPM fits awareness objectives like brand building. Assess campaign KPIs and metrics to determine the best billing method.
A: Use CPC for goal-driven campaigns focused on conversions and ROI. Use CPM for broad reach and exposure, especially for new product launches. Evaluate both for comprehensive strategies incorporating awareness and response.
A: Yes, CPC and CPM can complement each other in a cross-channel advertising approach. CPM builds awareness early in the funnel. CPC then converts interest into actions through tactics like search and shopping ads.
Determining the right ad pricing model is crucial for the success of digital advertising campaigns. CPC and CPM represent the core methods, each with its advantages based on strategy.
For direct response, CPC aligns spending with conversions and motivates optimization. For broad awareness, CPM values impressions and engagement.
Evaluating campaign objectives, metrics, and placement targeting options will guide the ideal billing method. In many cases, leveraging both CPC and CPM together provides comprehensive exposure and conversion performance.
By understanding when to apply CPC vs CPM, advertisers can build efficient and high-impact ad initiatives.
