If you’ve only just entered the world of performance marketing, you might be slightly overwhelmed with tons of different abbreviations and unfamiliar terms. But these are crucial for you to create the pricing strategy that’s optimal for the business and advertising type you’re operating.
Even for businesses that understand the power of managed advertising services, with professional Media Buyers on board, this is heavily needed for revenue maximization purposes.
One of the most important things to learn along your marketing journey is the pricing models for the performance campaigns and marketing metrics which turn them into insights. This glossary should come in handy for you whenever you need to peek into the marketing vocabulary.
Read about different pricing strategies, learn the difference between CPM, CPC, CPL, and CPA marketing, find out why not everything works on a cost-per-click basis, and become a digital marketer whose quality score is always on point.
For starters, let’s break down the pricing strategies you may encounter on your professional path. Each of these will vary depending on the type of advertising solution that you choose, so bear that in mind for the most competitive pricing strategy.
CPM – Cost Per Mille
Originating from Latin, the word Mille stands for a thousand views. Simply put, CPM is the cost of your ad per thousand impressions.
An impression occurs whenever the ad gets successfully loaded on a viewed webpage or application. The CPM form of pricing is most common for ads that score a lot of impressions, usually coming down to site-embedded advertising or Commerce Media solutions. CPM rates usually range from fractions of a dollar to just a few bucks.
CPV – Cost Per View (also known as PPV – Pay Per View)
The CPV is quite a unique media buying model. Unlike the CPM, it’s a cost for just a single view (as opposed to cost per thousand impressions). You can encounter CPV when setting up a campaign utilizing alternative forms of advertising, most likely the legacy affiliate formats.
Beware that CPV rates will be lower than for instance CPC, and are usually very small fractions of a dollar. These audiences are usually of a smaller contextual and intent match, hence most Media Buyers and brands decide to spend their budgets on slightly more expensive, but also more relevant, users.
It’s important to bear that in mind when optimizing your campaigns to preserve the optimal spending rate and simply avoid overpaying for audiences.
vCPM – Viewable Cost Per Mille (also known as CPVM – Cost Per Viewable Mille)
This pricing model came as a response to the ineffectiveness of some legacy formats, on-page advertising (most usually banner-like advertising). Sometimes ads would be located in lower parts of websites (below the scroll) so if a user is only interested in what’s at the top of the landing page, they won’t be able to see these. Even if they saw just the top of a said advertisement, they would be technically counted as an impression, but with no benefit for the advertiser. vCPM model allows advertisers to pay only for these audiences that really interact with an advertisement.
CPC – Cost Per Click (also known as PPC – Pay Per Click)
This one is as simple as it gets and quite self-explanatory. Also known as pay-per-click, the CPC form of ad monetization means that both an advertiser and a publisher benefit whenever users click on an ad.
Unlike the cost per lead or cost per acquisition, CPC means advertisers pay whenever, and only if their ad gets clicked on. This is a popular pricing model used within digital advertising with many ad formats including Facebook ads and Google ads, usually to increase brand awareness.
Zeropark Commerce Media operates on the PPC/CPC model, and we’ve prepared bidding materials for Zeropark Media Buyers, Advertisers, and Affiliate Marketers. See into Media Planner Case Study that delves into optimizing bidding strategies for brand campaigns, and the Complete Guide to PPV Bidding with all the insights needed when it comes to designing a bidding plan and optimization of spend on placements.
CPE – Cost Per Engagement
Even though it seems similar to the CPC model, engagement doesn’t always end up being a click. The CPE model is used for interactive formats, like for example forms. Since this can be done accidentally, usually the pointer has to be held on an ad for at least two seconds for the engagement to count.
CPA – Cost Per Action (or Cost Per Acquisition)
In the CPA pricing model, advertisers pay only if a conversion happens. But conversions may be various things. It means that advertisers have to set up some sort of goal, which they’ll interpret as a conversion before they start their CPA campaign based on this model.
This goal (a conversion) may be a sign-up, a sale, an impression, obtaining a qualified lead, simply engaging with an advertisement for long enough, or even getting to the desired section of a website. Whenever a user achieves that, the advertiser pays the agreed rate. The rate might be a flat rate or a percentage of profits. Obviously, the cost-per-action model is devoured by most advertisers, yet it’s not very popular among publishers.
CPL – Cost Per Lead (also known as PPL – Pay Per Lead)
Basically a type of CPA, CPL is limited to collecting leads, that’s why CPL means cost per lead. It’s used in lead generation campaigns, so the ultimate goal for an advertiser is to get data (like e-mail addresses) from potential customers. A CPL model is perfect for promoting newsletter sign-ups which might then be used for sale generation.
CPI – Cost Per Install
The CPI model is reserved for mobile app adverts. It works just like the CPA model, but it’s just more specific. In this model, an app advertiser pays whenever the app they’re promoting gets downloaded by a user who interacted with an ad.
REVSHARE – Revenue Share
The revenue share cost model is based on the percentage payouts of the revenue made on offers. Basically, every time some eager customer clicks on an ad, the advertiser pays publishers a fraction of their profits.
Pricing models are fundamental for calculating the costs of advertising. Some other metrics, however, come in handy when checking the effectiveness of your PPC/CPC, CPA, CPL, or CPM spending. That’s why below you’ll find a list of top metrics to follow and include in your marketing reporting. In case you’d like to learn more, just have a look at our article on reading affiliate marketing data.
ROI – Return On Investment (also ROAS – Return On Advertising Spend)
One of the simplest, and at the same time the key metrics for any advertising business. Return On Investment is the relation of your profits to the capital you’ve invested. The ROI is calculated by subtracting the investment from the income and then dividing this amount by the amount of investment. If your ROI is at 0%, it means that you didn’t make, but also didn’t lose any money on your activity. A negative ROI means a loss, while a positive ROI equals a gain.
Whatever works best for you, CPA, CPL, CPC, or CPM – monitoring your ROI is a must.
LTV – Lifetime Value
LTV metric is extremely meaningful for some advertisers. Imagine that you’re running a mobile app campaign based on the CPI model. Your conversion rate may be high, and you might be getting a lot of installs, but it can be all in vain if users never open and use your app. This is when the LTV comes into play. It measures the average profit made off one user, which is much more important than the number of downloads.
The general formula for calculating LTV is Average Revenue Per User (ARPU) divided by churn rate. In order to stay profitable, advertisers need to keep the CPA or CPI rate lower than the LTV.
CTR – Click-Through Rate
Another one of the key performance indicators you should keep an eye on is your click-through rate (CTR). The CTR metric is simply tracking the effectiveness of your campaign in terms of the number of people clicking on your offer link. To calculate the CTR you need to divide the total number of clicks by the number of ad views. The higher the CTR, the more effective your campaign is. It also helps you to search for the most profitable placements and optimize your CPC campaigns. If you want to succeed you need to use a call to action on your landing page, so people will be more likely to click on your affiliate link, and that way your click-through rate will surely increase.
CR – Conversion Rate (also abbreviated as CVR)
The CR metric is quite analogical to the CTR, but instead of accounting for a click ratio, it relies on the number of conversions, which are the goals you set up (like a purchase, sign up, or reaching a particular point of a website). CR is calculated by dividing the number of total conversions by the number of people who interacted with your ad. Again, this helps publishers to search for the most profitable sections of traffic.
Effective Cost Pricing
These metrics have been invented with unification in mind. Thanks to them, you can calculate your true CPM, CPA, CPL, and so on, regardless of the pricing model you’re operating on. For example, you can find out your rate for 1000 impressions (CPM), even if you only pay per install.
- eCPM – Effective Cost Per Mille
- eCPV – Effective Cost Per View
- eCPC – Effective Cost Per Click
- eCPA – Effective Cost Per Action
- eCPI – Effective Cost Per Install
- eCPL – Effective Cost Per Lead
To calculate the eCPM you divide the total costs of your ad by the total number of impressions and multiply it by a thousand. To calculate the eCPA, you shall divide the total advertising costs by the total number of actions. To calculate the eCPC, divide the advertising costs by the total number of clicks. Other eXXX’s calculations are analogical.
There is no definite pricing strategy that works best for all cases. Depending on a few different factors, including the chosen business model, revenue goals, and target audience, you may want to aim for a different pricing method. The key here is to understand your marketing objectives and get familiar with metrics that can tell you everything about the effectiveness of your campaigns, and then react accordingly.