As a website publisher, ad revenue may be the largest contributor to your revenue. But here’s the thing: there are various different models of ad revenue and it can be confusing to figure out how they work and how you’ll get paid.
These pricing models include CPC and CPM. With CPC, advertisers pay every time someone clicks on their ad. This means the amount payable is based on the ad’s performance or, in simple terms, when fewer people click on the ad, the advertiser will pay less.
In contrast, with CPM, advertisers pay for the number of impressions or, in other words, the number of times the ad is shown to people. This is similar to the pricing model that’s used for traditional media ads like TV or radio.
The choice between the two mostly depends on the goals of the advertiser, and that’s out of your hands. What’s important, though, is how you’ll get paid.
So, to clear any confusion, we’ll look at the differences between CPC and CPM and how you’re paid.
What’s the Difference Between CPC and CPM?
CPC stands for cost per click. With CPC, an advertiser pays every time someone clicks on their ad in an ad campaign. In contrast, CPM stands for cost per thousand impressions. Using this model, advertisers don’t pay for clicks on the ad, but they pay every time the ad is shown.
The great thing about CPC for advertisers is the fact that they’re only charged when someone clicks their ad. So, if their ad doesn’t get many clicks, it may be possible that they’ll get thousands of impressions for free because people will still see the ad. Unfortunately, you also won’t be paid if no one clicks on the ad.
One upside is that if their ad happens to perform well, they’ll get a high click-through rate (CTR) and they’ll pay for each click. Ultimately, this can end up costing them a lot of money and bagging you a lot of revenue.
On the other hand, CPM is beneficial when advertisers want to create awareness around a product or service but don’t necessarily want people to buy their product yet.
Is CPC or CPM Better?
To enable you to decide which is best for your website, we’ll need to look at what advertisers’ goals are with the respective pricing models. In this way, you’ll be able to see how the different models can impact what you offer to advertisers.
If an advertiser’s ultimate goal is to drive prospective customers to their website or landing page, their best bet is to use CPC. However, if their aim is to create awareness and give their product or website exposure, a CPM campaign is the best choice.
With this in mind, a CPM campaign can be more cost-effective for advertisers (compared to a CPC campaign) if they want more people to see their ad. Also, they often have more options for customization for how the ad is shown with CPM. In contrast, many CPC campaigns have fewer options.
With that in mind, let’s look at what CPC or CPM can mean for you as a publisher.
With CPM, advertisers pay a flat rate for every 1,000 times their ad is displayed to your audience. Because the focus of many advertisers is brand awareness rather than making a sale, they may prefer publications that offer this model.
One of the main benefits of the CPM model is that your revenue may be more predictable if you know your average page views in a month.
For example, if you know you get an average of 10,000 page views a month, you’ll be able to calculate with reasonable certainty what you’ll earn from CPM ads. Also, with CPM ads, you’ll often have fewer requirements — as long as you display the ad, you’ve done what you had to.
There are, however, a few disadvantages. For one, you may need to offer rich media advertisements to help advertisers get value from impressions. You’ll also need to show that you have sufficient website traffic to make the ad worth the advertiser’s money.
So, when should you offer CPM? If your website or blog has high-volume traffic and an engaged audience, CPM is probably a good option if you want to offer advertisers the ability to create brand awareness.
Unlike CPM, CPC is a performance-based advertising model. In other words, advertisers will only pay you well if their ad performs well. Because of this, you’ll often be able to attract more advertisers with CPC because their return on investment is more measurable.
With CPC, you’ll also be able to collect more data (like click-through rates) that you can use in terms of selling ads. With this data, you’ll then be able to show advertisers what to expect if they advertise on your site.
Just like CPM, CPC also has some disadvantages. For one, your revenue will be less predictable, because you can never be certain how many people will click on an ad. Also, clicking on ads takes visitors away from your site. So, while you’ll earn ad revenue, visitors will leave the page.
So, when should you offer CPC? Well, if you want to attract advertisers who want an immediate response to an ad, you should definitely consider offering CPC ads.
How Do You Calculate CPM?
When you want to calculate CPM, you’ll work on the cost per 1,000 impressions basis. Here, you’ll simply charge advertisers a flat fee for every 1,000 times their ad is shown.
For example, let’s say you charge an advertiser $5 per 1,000 impressions. Regardless of how many clicks the ad gets, with 10,000 impressions, the advertiser will pay you $50.
How Do You Calculate CPC?
When you use CPC, an advertiser will pay you every time someone clicks on their ad (which is displayed on your site). This model differs from CPM in that the advertiser will set a budget and the maximum amount that they’re willing to pay for a click. This is their bid.
An ad network like Google Adsense then compares their bid to the bids of other advertisers and if their bid is competitive, the ad network will show their ad until their complete budget is used up.
How Are Publishers Paid with an Ad Exchange?
Ad exchanges allow billions of impressions to be bought and sold in real-time using an auction process. As such, the buying and selling process is based on bidding. Publishers can set the prices they’ll accept for each impression. They can also set the criteria for the types of impressions that they want to buy and sell.
Advertisers then bid on these impressions and compete with one another for every impression. As a result, the auction drives up the price of the ad space.
Because ad exchanges provide a single point of contact between publishers and advertisers, there are fewer companies in the chain to take a cut of the ad spend. This leaves a higher proportion of profit left for publishers. This makes exchanges a more effective sales channel for publishers compared to ad networks.
The Bottom Line
So, CPM versus CPC, which is best? That’s a decision you’ll need to make for yourself. We’ve examined the pros and cons of each, but only you can decide which system is best for your revenue and your users.