When entering the world of performance marketing, you’re likely to get overwhelmed with tons of different abbreviations and unfamiliar terms. One of the most important things to learn at the beginning are the pricing models for your campaigns and metrics which turn them into insights. We’ve created this glossary for you, so you can save it and come back whenever in doubt.
For starters, let’s break down the pricing models which you may encounter on your new professional path.
CPM – Cost Per Mille
Originating from Latin, the word Mille stands for a thousand views. Consequently, CPM is a cost of your ad per 1000 impressions. An impression occurs whenever the ad gets successfully loaded on a viewed webpage or application. This form of pricing is most common with ads that score a lot of impressions, which usually comes down to banners and native ads. 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 model is quite unique. Unlike the CPM, it’s a cost for just a single view, and hence, it’s not used for traditional banner ads. You can encounter the CPV model when setting up a campaign utilizing alternative forms of advertising, such as video ads or pop ads. Beware that CPV rates are usually small fractions of a dollar, so mistaking the CPV for CPM can drain your budget in no time.
vCPM – Viewable Cost Per Mille (also known as CPVM – Cost Per Viewable Mille)
This pricing model came up as a response to the ineffectiveness of banner ads. Sometimes ads are located in lower parts of websites, so if a user is only interested in what’s at the top, they won’t be able to see those ads or only see a small piece of them, even though, they technically count as impressions. In this case, rewarding the publisher doesn’t seem fair. vCPM lets advertisers pay only for those ads which really appear on the recipients’ screens.
CPC – Cost Per Click (also known as PPC – Pay Per Click)
This one is as simple as it gets and quite self-explanatory. Advertisers pay whenever, and only if their ad gets clicked on.
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 specific formats, like expandable hover ads. The engagement is complete when a user hovers over an ad, so it expands to a larger size of banner. 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 model, advertisers pay only if a conversion – whatever it may be – happens. It means that advertisers have to set up some sort of goal, which they’ll interpret as a conversion before they start their campaign based on this model. This goal may be a sign up, a purchase, or even getting to the desired section of a website. Whenever a user achieves that, the advertiser pays the agreed rate. Obviously, this 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. It’s used in lead generation campaigns, so the ultimate goal is just to get data (like e-mail addresses) from potential customers. A CPL model is perfect for promoting newsletter sign-ups.
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, advertisers pay whenever the app they’re promoting gets downloaded by a user who interacted with an ad.
Revenue share cost model is based on the percentage payouts off the revenue made on offers.
Pricing models are fundamental for calculating the costs of advertising. Some other metrics, however, come in handy when checking the effectiveness of your spendings.
ROI – Return On Investment (also ROAS – Return On Advertising Spend)
One of the simplest, and at the same time the key metric for any business. The 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.
LTV – Lifetime Value
LTV metric is extremely meaningful for advertisers. Imagine that you’re running a mobile app campaign based on the CPI model. Your conversion rate may be high, 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 an 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
The CTR metric is simply tracking the effectiveness of your campaign in terms of the number of people clicking on it. 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.
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 conversion by the number of people who interacted with your ad.
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
What the little ‘e’ preceding the pricing model brings is the metric of the effectiveness of the campaign. 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, even if you only pay per install.
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.