At Veriday, we firmly believe in the benefits of inbound marketing. That doesn’t mean we don’t see the value in advertisements. Depending on what type of customer action your brand is trying to motivate, online advertising might be the best solution. Today, we are going to examine the different pricing models for online ads, and where they are most commonly used.
There are several different ways to price online ads. The pricing model depends on the campaign goals, the platform hosting the ad and the type of ad itself. Not all digital advertising pricing models are created equally. Some models are more advertiser-friendly than others. These are the four most common pricing models used in the online performance advertising model. Any of the following pricing models might be right for your digital advertising campaign.
1. Cost-per-Thousand (CPM)
The cost-per-thousand (CPM) model is the most common pricing model for video advertising. Display advertising also commonly uses the CPM model, but display ads are starting to move towards other pricing models, such as cost-per-lead (CPL) or cost-per-action (CPA).
The CPM pricing model sets a flat rate for every 1000 views an ad gets. One of the major issues with this pricing model is that advertisers are charged regardless of whether anyone clicks their ad. Youtube, for example, bills advertisers on a CPM basis. Advertisers are charged a flat rate per thousand views that depend on a variety of factors.
What content is running alongside the ad? What format is the ad? How long is the ad? Is the ad skippable? Are there other advertisers bidding for that ad space?
Depending on the answer to those questions, advertising costs on Youtube can vary wildly. There is one main question advertisers need to ask themselves when considering a CPM digital advertising campaign. “Am I willing to pay for just impressions, no actions or clicks?” If not, you might want to consider another pricing model.
2. Cost-per-Click (CPC)
Cost-per-click (CPC) advertising charges advertisers only when someone clicks on the ad. This model corrects one of the major issues with the CPM model, where advertisers are charged, regardless of how many people click on the ad. That doesn’t mean the CPC model is perfect, in search advertising, keywords have become very expensive (and prices are steadily rising).
The most expensive keywords belong to industries such as finance, insurance, and professional services. For example, a single click on a search ad for the keyword, Insurance, costs just under $55, however, having targeted keywords to bid on will lower your cost per click substantially.
While CPC advertising guarantees clicks, there still are some issues other than expensive keywords. [ It doesn’t guarantee clicks] You get charged for errant clicks that do not result in a lead or customer action, but the risk of paying for nothing is lower than it is for the CPM model. The CPC model is commonly used for sponsored social media posts and display ads on web pages.
3. Cost-per-Lead (CPL)
Cost-per-lead (CPL) pricing models are the most advertiser-friendly pricing model. In the CPL model, advertisers only pay for every qualified lead. This model eliminates the possibility of paying for accidental clicks and views. To qualify as a lead, someone has to explicitly fill out a form on the advertiser’s website after clicking the ad (usually to provide contact information.) CPL advertising allows advertisers to generate guaranteed returns from their online advertising budget.
In 2008, the Obama campaign used CPL advertising to build email lists. A lead was only considered qualified if they signed up for an eNewsletter, making the campaign very cost effective.
CPL models will increase the cost-per-lead depending on the complexity of the form that the user needs to fill out. The more qualified a lead is, the more expensive they will be. That usually means that the more information the form requires, the more expensive the lead will be.
The cost-per-action (CPA) model requires even more specific actions than CPL before an advertiser pays. Usually, that action involves the customer making a purchase or signing up for a service. In CPA advertising, the advertiser usually only pays after a credit card transaction. That means the CPA model is best for motivating immediate action when the advertiser wants a customer to buy something right away. For that reason, CPA advertising can be ineffective for industries with a high barrier to purchase such as financial services, insurance, and professional services.
Some of the benefits of the CPA model is the fact that advertisers do not have to pay for bad leads, knowing that a transaction has been made every time they have to pay for the ad. The CPA model makes it easier for advertisers to choose their price point because it’s easier to determine the value of a customer. All you need to do is calculate the revenue that customer will bring, and how much profit you want to make on each sale.
CPA advertising can also refer to cost-per-order (CPO), online lead generation or cost-per-conversion.
Be smart when selecting which digital advertising pricing models are right for you!
There you go, an easy reference for online advertising pricing models. Remember, outbound marketing is more expensive and less effective than inbound marketing. That doesn’t mean there isn’t a fantastic use-case for digital ads. To truly succeed in the digital age, you need a well-rounded approach to marketing. Our article: Outbound Vs. Inbound Marketing for Financial Advisors may be able to help you better understand the differences between inbound and outbound marketing. This article: 4 Ways Technology can Help to Increase Customer Engagement can help you find ways to leverage technology solutions in your marketing mix. Follow us on Twitter @VeridayHQ or follow us on LinkedIn.