The Four Types of Performance Marketing: Which is Right for You?
As in many specialized professions, performance marketing abounds with acronyms. If you don’t know what they mean (or how they impact your marketing and advertising campaign), you can’t make sound decisions. Following are the four types of performance marketing and how they produce results.
CPM: Cost Per Thousand
CPM stands for “cost per mille,” which translates to “cost per thousand.”
When you buy advertising space on a CPM basis, you pay a set amount of money for every 1,000 impressions of your ad, according to Investopedia. An impression occurs when the ad appears on a web page. For instance, in display advertising, you’ll pay your bid per 1,000 when your banner ad appears on a publisher’s site.
The downside to CPM advertising is that impressions don’t always — or even often — translate into clicks. You’re paying for exposure rather than for action. It comes from the television and radio model of advertising. Companies pay each time the commercial airs no matter how many people actually pay attention or visit the store. However, it’s ideal for businesses that want to increase brand exposure.
CPC: Cost Per Click
CPC advertising is slightly more advantageous for the advertiser
because you only pay when a prospect clicks your ad.
If your digital advertising agency recommends CPC (cost per click) advertising, you’ll gain better odds of increasing sales and conversion rates than you would with the CPM model. With CPC, you only pay when a prospect actually clicks your ads.
The formula for calculating an advertiser’s CPC rates varies depending on the platform. For AdWords, according to WordStream, the formula is the competitor ad rank divided by the advertiser’s quality score, plus .01.
While a click doesn’t guarantee a purchase, CPC campaigns can perform well for businesses that already have high conversion rates and simply want to boost traffic numbers. If you’re consistently converting your visitors, increasing traffic rates will improve your overall sales.
CPL: Cost Per Lead
The next performance marketing “level” is CPL, or cost per lead. With this model, the prospect doesn’t just have to click on your ad for you to get charged; he or she must also take a further action to become a more qualified lead. This could mean filling out a contact form, signing up for your email list, or performing some other task.
Many businesses thrive on CPL performance marketing campaigns. In many cases, qualifying a lead is the next best thing to a sale, and a qualified lead is far more likely to make a purchase than a prospect who simply clicks on your advertisement. Businesses that want to target their ad spend carefully often experience the best results with CPL.
CPA: Cost Per Acquisition
The most expensive (but also often the most lucrative) form of performance marketing is CPA, or cost per acquisition. Under this model, you only pay for an advertising spot when the prospect actually makes a purchase. It doesn’t matter whether the purchase is for a product or service, but the advertiser doesn’t pay until the deal is done.
You might also see CPL and CPA lumped together as another CPA acronym: Cost Per Action. In this instance, the advertiser establishes whether it is paying for a lead (CPL) or a sale.
Choosing a performance marketing method requires considerable thought. Working with a digital advertising agency to evaluate your business and your budget will produce the best results. To learn about our strategies for helping businesses succeed with performance marketing, contact our Director, New Business Development, Amanda Sparks.