CPC, CPM, CPL, CPA… With all these digital marketing terms, do you feel lost? Don´t worry. These are actually very simple values to calculate and adjust your Ads campaigns (Facebook, Instagram, Snapchat, Google, etc.) in order to get the best ROI!
Does it sound complicated? It is actually quite simple. The ´CP´stands for ´Cost Per´, and the last letter means the form of billing. You will find out when each method is more convenient to use. Below, you can find the detailed definitions and calculation methods of CPC, CPM, CPL, and CPA.
Online advertising figures
According to Irep, SRI, and Udecam, digital advertising is the leading advertising medium ahead of television, radio, and newspapers. Since 2008 and the first advertisers, the online advertising market has not stopped growing. In 2020, the amount spent on digital advertising was $378.16 billion. The leading players in e-advertising are obviously Search Engines (Google) and social networks (Facebook and Instagram in the lead).
Digital advertising spending worldwide is estimated to reach a total of $646 billion by 2024. It seems that investing in internet advertising is a good start to achieving business objectives.
Who sells and who buys advertising on the internet?
To understand who buys what from whom, we will explain in detail the two main players in a transaction: the buyer and the seller.
Who is buying?
The one who buys is called the advertiser. It can be a brand, an organization, a company, or an association. The advertiser wants to publish an ad with the aim of promoting his product, his service, or his brand. The advertiser defines the objective of the digital advertisement.
Who is selling?
The one who sells the advertising space is the publisher. The publisher owns a website and wants to create traffic or notoriety. The publisher earns money by selling advertising space to an advertiser.
How can I advertise with a publisher?
In order to advertise on a publisher’s site, you will go through an advertising network. The advertising network is in charge of connecting the advertiser and the publisher. It offers spaces dedicated to digital advertisements on different sites. It is also the advertising network that controls the ads and transmits them to the publishers. Furthermore, the advertising network will let you know the cost of your ads. This cost is determined by different criteria and depends on your objectives. There are many methods of billing advertising campaigns on the Internet. Among the most widespread are the CPC, the CPM, and the CPL.
The CPC: Cost Per Click
The CPC is the abbreviation for “Cost Per Click”. In the context of online advertising, the cost per click is the amount that an advertiser pays for each click that brings a user to its website. The CPC is paid directly to the website publisher who will display the ad.
The objective of CPC
If your objective is simply to bring a visitor to a page of your website, the cost per click will allow you to pay exactly for what you want. The main objective of the cost per click is to generate traffic to your website. You can opt for CPC if you want to :
- get qualified traffic
- drive conversions on your website
- calculate the return on investment easily.
Pay-per-click is used in several acquisition methods. Among them are affiliation, retargeting, display, and search.
There is no average CPC. The CPC varies according to the site on which you want to advertise, the country where your ad is displayed, and even the keywords you target, for example. Indeed, to appear on the Google display network, the CPC will not be fixed but configured under a bidding system. It is estimated that the average CPC on Google is between 1€ and 2€ in the United States and around 1€ in France. The average CPC in the United Arab Emirates is 8 percent greater than in the US. On Facebook, the average CPC is $0.40 – $0.65 in North America, and $0.12 – $0.19 worldwide.
To calculate the CPC, simply divide the total amount spent by the total number of clicks. The average cost per click is calculated using the actual cost per click spent on each click on your ad. The average CPC formula = Total budget / Number of clicks = CPC.
You have been charged 500€ for 580 clicks.
Your average CPC = 500 / 580 = 0,86
Your average CPC is 0,86€.
CPM: Cost Per Mille
CPM is the abbreviation for “Cost Per Mille”. In the context of online advertising, the cost per mille corresponds to the amount that an advertiser pays for every thousand impressions (displays) of its advertisement on a publisher’s site. If the cost per thousand views of a banner ad is $2 and you want to buy 1 million views, you will pay $2,000.
The objective of CPM
When an advertiser opts for a Cost Per Mille, its main objective is to improve its brand awareness or the awareness of one of its products/services. The goal of a Cost Per Mille campaign is usually to work on the branding of a company. You can opt for CPM if you wish to:
- associate your brand with a prestigious publisher,
- announce a new feature to Internet users,
- make yourself visible.
The payment per thousand is most often used in display Ads campaigns, email marketing, Social Media, and on comparison sites.
There is no rule about the average CPM. As with CPC, it depends on many factors. Among them, the size of your banner ad can for example be one of them. It is therefore up to you to determine exactly how much you can spend on a CPM campaign and then calculate the return on investment. According to Revealbot, the average CPM on Facebook across all industries is $14.40.
To calculate the CPM, you need to divide the total investment budget by the total number of impressions. Then you need to multiply the result by 1,000 to get your CPM. The CPM formula is = (Total budget / Total number of impressions) x 1,000 = CPM.
You have paid 5 000€ for 200 000 impressions.
(5 000 / 200 000) x 1 000 = 25
Your CPM is 25€.
To calculate how much an ad is going to cost you based on the advertised CPM, you need to multiply the total number of impressions you want by the CPM. Then you divide it by 1,000. The total budget formula is therefore = (Total number of impressions x CPM) / 1,000 = Total budget.
You had 200,000 impressions and the CPM is 25€.
(200 000 x 25) / 1 000 = 5 000
Your total budget is 5 000€.
CPL: Cost Per Lead
CPL is the abbreviation for “Cost Per Lead”. In the context of online advertising, the cost per lead corresponds to the amount that an advertiser pays for each lead obtained. The acquisition of this lead can take place via a completed contact form or a subscription to a newsletter for example.
The objective of CPL
The objective of cost per lead is to obtain data on potential customers. Pay per lead is the ideal method if the main objective of your e-marketing campaign is to obtain new prospects and thus expand your database.
You can opt for CPL if you want to:
- obtain information about your prospects,
- generate registrations,
- send a newsletter.
The cost per lead is generally used for affiliation or email campaigns.
There is no fixed average CPL. The average CPL varies according to the sector of the advertiser, the type of ad, the qualification of the lead obtained, and finally the final value of the lead. In general, the less you pay for your lead, the lower the quality of the lead. Conversely, the higher the CPL, the higher the quality of your leads. The average CPL tends to be around $31 for SEO.
Calculate the CPL
To calculate the CPL, you need to divide the total budget invested by the total number of leads obtained. The CPL formula = Total budget / Total number of leads = CPL.
You spent $5,000 and got 250 leads.
5,000 / 250 = 20
Your CPL is $20.
CPA: Cost Per Action
CPA is the abbreviation for “Cost Per Action”. It is also known as “Cost Per Acquisition” and “Cost Per Conversion”. In the context of online advertising, the cost per action is the amount that an advertiser pays for each conversion obtained from this advertising. It can be a click, a purchase, a contact, the download of an application…etc.
The purpose of CPA
The purpose of calculating the CPA is to define the cost you can attribute to a conversion. The definition of your CPA is essential for a good ROI. To do this, you must first define the objective of your campaign and the maximum cost to be attributed for each achievement of this objective: the CPA.
Calculate the average CPA
To calculate the average CPA, you need to divide the total budget invested by the total number of conversions obtained. The average CPA formula = Total budget / Total number of conversions = CPA.
You spent $10,000 and got 320 sales.
10 000 / 320 = 31,25
Your CPA is 31,25€.
You should now feel a bit more prepared to start buying online ads. Well-targeted digital ads will allow you to obtain an optimal ROI and be able to know exactly how much a campaign will cost you. These adaptations can be made with the help of a SEA agency that will make sure you reach your target and maximize your ROI!