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The Different Pricing Models in Online Advertising

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The online advertising industry has exploded. The difficult, and somewhat complicated matter of pricing models inevitably comes with this. CPC and CPM are the most common among the pricing models because they have been around the longest.

Now, however, advertisers can calculate price in various other ways. Pricing models are important to the advertiser’s budget strategy, so it’s worth your time to review the different options before diving into the online advertising world. This article gives a few details on the three most popular pricing models as well as some others.

CPC or cost per click

The CPC pricing model charges the advertiser for every click on their ad. The clicks usually equate visitors finding their way to the advertiser’s website. In this pricing model, nothing else matters except that there were clicks on the ad.

The price for CPC usually ranges from cents to a few dollars. This pricing model splits the risk between the publishers and the advertisers. This means that the publishers receive more revenue if an ad is a hit and clicked several times, but the advertisers end up paying more in this scenario.

Vice versa, the advertisers get to save when their ads are clicked less times, but this is bad news for publishers who earn less out of the transaction. The key in this relationship is to balance the risk between advertiser and publisher.

CPM or cost per “mille” (per 1000 impressions)

The CPM model relies heavily on impressions, which typically means the number of times an ad is shown. It does not matter if the ad is clicked, or if it prompts any action from the visitor, as long as it has been displayed.

CPM pricing protocol usually gives a guaranteed number of impressions. The advertising platform then calculates the price and bills it to the advertiser based on this.

This pricing model is best for display and visually-based ads vis-à-vis CPC, which is better for response-oriented campaigns.

Publishers usually consider CPM their best option because the revenue is predictable and measured as compared to a CPC pricing model.

CPA or cost per action / acquisition

In CPA, the publisher typically charges an advertiser based on actions visitors take upon encountering their ad. The action may be to sign up for a trial or to download an application. Advertisers can choose what specific action is to be charged.

While CPA works best for advertisers because it gets results done (certain acquisitions), it is the most risky for publishers.

Other models

The above-mentioned pricing models are the most popular for display advertising, but there are a few others that have popped up in recent years. Many of these are related to the CPA model.

CPF or cost per follower or fan is a pricing model that’s usually used for social media marketing

CPV or cost per view is used for online video ads

CPI or cost per install is typically a pricing model for mobile apps

CPD or cost per download of an online application or any downloadable products.

Are there other types of pricing models you know of? Feel free to comment.

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Your description of the risks of cpc don't make sense to me.

Don't advertisers and publishers have the same interest? Don't they both want a bunch of clicks? As an advertiser looking for clicks, why would I consider a low click total a good thing? Why would I consider a high click total a bad thing?

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