Most Common Pricing Models for Online Advertising

When you’re ready to launch your first mobile advertising campaign you’ll notice that outlets will offer different pricing models based on a variety of metrics. How do you know which one is right for you? Here’s a helpful overview of each:

 

CPM or Cost-Per-Mille:

“Mille” is another word for “thousand,” so a CPM campaign means that you will pay per every 1,000 impressions. This pricing model is based on inventory, and it’s the most common option to date. Advertisers measure the success of CPM campaigns by analyzing the click-through-rate (CTR). The CTR is the percentage of people who saw your ad and clicked on it. For example, an advertisement that receives two clicks for every 100 impressions has a 2% CTR. The average CTR is 0.42%, so anything above that shows that the campaign is performing well.

Paying by CPM is a good low-cost solution. It’s ideal if you’re on a budget and need predictable pricing. At the same time, this model is great when brand awareness is more important to you than performance. The downside of CPM campaigns is that you have to pay even if the ads are shown to the same person multiple times. Keep in mind that you’re measuring impressions and not unique views.

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    CPC or Cost-Per-Click:

    CPC is a performance-based metric. It means that you only pay when a mobile user clicks on your ads. It doesn’t matter how many impressions your campaign receives. It’s hard to determine the “right” CPC. However, the average cost-per-click in Google Ads is between $1 and $2 on its search network. The average CPC on its display network is under $1. 

    This model presents some clear advantages for the advertiser. First of all, the ads will receive exposure even without clicks. Your ads will be delivered without spending a dollar of your budget. You also benefit from a measurable ROI. 

    Even though CPC campaigns seem like a good deal, keep in mind that there will be bidding wars. This means you might not get the results you expect by bidding a small amount of money, since other advertisers are fighting for the same prime placement.

     

    CPA or Cost-Per-Action:

    This pricing model is also known as Cost-Per-Acquisition and Cost-Per-Conversion. With a CPA campaign, the advertiser pays for a specific action — for example, a sale, a form submit, etc. The average cost per action can vary depending on your business model and industry. On average, advertisers on Google AdWords spend around $60 CPA on display ads. Research shows that the financial industry presents a lower average — $41 CPA on display ads, and $51 on search ads.

     

    CPI or Cost-Per-Install:

    The CPI pricing model is specific to mobile applications. As you may have already guessed, you only pay once people install your app on their devices. This pricing model is a very risk-free concept. Your ads will get exposure even without clicks or actions. That means you will only pay for performance. In this case, no action equals no payment.

    You should keep in mind that CPI is the most expensive out of all online forms of advertising. It also requires revealing sensitive information and presents the lowest conversion rates.

    By understanding these concepts and choosing the right pricing model, you’re getting your campaign off to a good start. If you’re not up for the fun, consider hiring a team of experts who will handle your campaign from start to finish.

     

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