When planning any marketing campaign, it is essential that the media agency planner selects the correct metric in order to reach a client’s online marketing objective. In this article we will describe some of the scenarios in which each metric is most appropriate and the reasons for these decisions. We’ll be focusing primarily on online display advertising in which we specialise alongside affiliate marketing, as this is the channel to where we feel the selection of the billing metric is most fundamental for success. There are three principal ways of buying: CPM (Cost Per Mille), CPC (Cost Per Click) and CPA (Cost Per Acquisition). Each has substantial implications for both advertiser and publisher; primarily in terms of the incoming revenue for the publisher (extent of the risk) and the sales volume generated for the client but all have a very important place within media as a whole. When each is rightly implemented, the consequence can be turning a run-of-the-mill campaign into an immensely profitable one.
Straight to CPA display advertising is a rare offering but it has become more prevalent in recent years. Real time bidding specialists are now confident enough that their technology could be sophisticated enough to take this risk on billing only on CPA. Agencies and clients alike jumped at the chance to guarantee hitting a predetermined ROI for their target CPA. The pricing option however has the distinct downsides of a low sales volume, less prime inventory allocation and not enough investment being made by Real Time Bid traders to scale and learn. We find that CPA is a great place to begin for a client’s site which is fresh to display advertising. It can allow us to collect the necessary learnings for future ventures in online marketing. We can then understand the dynamic interactive between impressions served, clicks, and consequent sales. Once we have understood this customer journey we can then move clients (often slowly) onto CPM buys where we can scale sales and revenue.
CPC has transformed ad-buyng industry
A less-used but certainly substantial area of media buying is running campaigns on a cost per click basis (CPC). This, and CPA deals, have become even more prevalent in recent years with the rise of remnant inventory deals. An auction environment lends itself perfectly to this form of unallocated media buy and has transformed the industry, allowing much more flexibility in display buying. CPC campaigns are a great way, from an advertiser’s perspective, of driving guaranteed traffic to a website for their planned budget. The huge competition from the vast numbers of technology providers nowadays has forced compromises in risks to be made, hence the move to pure CPC and CPA offerings from certain providers. But it is always important to be aware that these providers will be buying this ‘less prime’ inventory on a subsidised CPM and will therefore not necessarily consist of much ‘above-the-fold’ ad space. It is therefore not only important to get the buying metric right to hit your KPIs but also to get the technology right, and diligence within this field is now what most clients depend on their experienced agencies for.
Buying on CPM, or the price based on delivery of one thousand impressions, has always been the traditional way to buy media in display advertising. It is the favoured billing metric for publishers, due to the assured revenue generated from serving each impression. The performance of a CPM campaign is heavily risk/reward-based due to the associated uncertainty of revenue for the advertiser. It is CPM which holds by far the most potential for scale and success, with ROI and volume maximums seen more often than not when employing a CPM buy. Variance, or risk on the advertiser, is not necessarily always a bad thing; if other parameters are finely tuned and delivered in an optimal manner the sky is the limit on CPM. A direct consequence of the increased variance via this route does however put a lot of pressure on the technology and creative being used and it is always very much encouraged to be selective when planning a campaign of this type.
CPA is a multi-billion industry
In affiliate marketing, where sales are generated almost exclusively on cost per action, the confidence of these affiliate partners to operate on CPA is mainly due to the nature of their offering. Affiliate websites are often closely tailored to the product being promoted, and there is a great deal of incentive marketing, for example through discount and cashback websites. These are such important tactics to influence those bargain-hungry consumers and this volume driving tactic is now a multi-billion pound revenue generator and rightly so.
It will be very interesting to see how the display market evolves over the next few years. What we feel it will boil down to is twofold: how much data our algorithms can collect, process and utilise, using new and more sophisticated targeting methods, and secondly, how the creative element of online visual advertising evolves. The former will undoubtedly show a positive increase, and technology will just get better and better as it has exponentially across much of the tech industry. We still do not feel that the CPA model will ever take over as the traditional method of buying these media however. As trust in technology increases further, we believe it will be a case of marketing budgets drastically increasing, rather than the traditional metric of choice switching. The delivery of the creative execution could also transform online marketing. Rich, interactive media could become ubiquitous faster than previously expected and this, combined with the leaps of technological advancement, should be extremely exciting for online media.