Advertising payment models: which to choose?

What is the goal of any advertiser who sets up an ad? Of course, to get results – specific, measurable, profitable results. But when launching campaigns, each advertiser has a different goal, it depends on the specifics of the niche. This means that the actions leading to the result are also different.

As an example, there are two online stores: one that sells clothes, and one that promotes mobile apps. For the first advertiser, the target action will be clicks on product pages, and for the second, the download rate is important.

So, each model of payment for contextual and targeting advertising has performance indicators: the number of impressions, conversions, conversions. And the variety of these models allows the advertiser to determine the priority actions for which they are willing to pay. And choose them.

Let’s tell you how to find the optimal one among the models for Google Ads, Instagram and Facebook.

1. For clicks (CPC model)

CPC (Cost-Per-Click), or pay-per-click. This model differs in the way the price per click is set. For example, it is generated automatically by auction system or selected manually by the advertiser. The auction model is set up as follows: the advertiser indicates the maximum rate, which he is ready to pay for the click. This will be deducted the amount received at the auction.

The formula: the cost of advertising is divided by the number of clicks.

Advantages: The CPC model allows you to effectively manage your budget, which eliminates the possibility of overspending. It is considered to be quite predictable, so it will be an excellent choice for the initial stage when you need to gain experience.

Features: Please note that there is no point in setting the cost per click too low – otherwise the ad will not be shown at all.

CPC-model is not suitable for media advertising, because there the main characteristic is ad impressions: the more of them, the better. But it is available for contextual and targeting advertising. Will show itself effective in cases where:

  • you need to assess the reaction of the target audience;
  • the campaign is new, so there is not enough data on conversions yet;
  • you need to ensure inexpensive traffic, because clickability is low.
Advertising payment models, CPC

Fig. 1 – Example of CPC model

If you are ready to pay for clicks on commercial pages, then the pay-per-click model is for you.

2. Per 1000 impressions (CPM model)

Also popular, but more unpredictable model. Came to Internet marketing from the media. There are two types in all advertising systems: auction-based and fixed. It requires skills to set up an advertising campaign, so we will not recommend it to beginners.

The formula: The cost of advertising placement should be divided by the number of views and multiplied by a thousand impressions.

Advantages: Its effectiveness depends on the cost of advertising and the size of the target audience of the site in which it is placed. The main characteristic for CPM is conversion of impressions. Since money is deducted only after an ad is shown 1000 times, you can squeeze the most out of each one. This advertising payment model is available in Facebook, VKontakte.

Features: With a low conversion rate the campaign might not bring results, and the clickability of the ad has no effect on the final price. It is important to pay attention to the subject matter of the ads placed on a particular resource.

As for the principle of pricing, it is similar to the CPC. Fixed cost model CPM arbitrarily set in the campaign settings, this type of advertising is typical for targeting. Auction model allows you to adjust only the maximum bid, but the amount generated during the auction is deducted. This type of CPM cost is found in contextual advertising.

This model will be optimal for:

  • launching a new product/service or entering a new market;
  • ads with high clickability;
  • in order to provide the maximum coverage at a favorable cost.
Advertising payment models, CPM

Fig. 2 – Example of CPM model

The Optimized-Count-Per-Mile (OCPM) model can be referred to as a type of CPM. It allows you to optimize the cost per 1000 impressions manually – the price per 1000 impressions indicated by the advertiser himself, based on a comfortable amount for him. This value should be specified in the “Desired cost of the request” field. Thus, the system will automatically calculate a cost per 1000 impressions, so as to receive the maximum number of requests at a given price.

Like the classical CPM, oSM model is suitable for businesses where the important role is played by requests/sales: this includes online stores, marketplaces. This is often how banners are paid for. The model is ideal for a media campaign, as well as if the goal is to increase brand awareness.
So, if you are ready to pay for coverage instead of reaches, you can stop on SRM.
If you want to pay for coverage, but adjust the price of the lead – your choice is CPM.

3. For targeted actions (CPA model)

CPA (Cost-Per-Action) is a payment for actions:

  • sending data through a contact form;
  • transition to a messenger or call through the site;
  • registration on the site;
  • placing an order for a service;
  • sending a product to the cart.

Thus, the advertiser pays only for the reaction of those users who are really interested in his advertising.

The formula: Payment for targeted action equals advertising costs divided by the number of targeted visits

Advantages: Absolutely transparent interaction model, and the result is not only predictable, but also quite expected. No need to understand in detail the parameters of the target audience and fear of an inefficient drain on the budget. Including the “Pay for Conversions” option, the advertiser pays for each achievement of the target visit, which is specified in the advertising cabinet. Works well for both products and services.

Features: The model is suitable for those who have recently started setting up advertising, it has more versatility. Applying the CPA model, businesses will face fewer financial risks. It is effective for campaigns with a commercial purpose, if you want to achieve transactions. But it’s important to set up proper conversion tracking – on-site counters and web analytics. If there is data on them for several weeks, then paying for targeted actions will be effective: the longer the ad is on the air, the more effective Google Ads algorithms.

Advertising payment models, CPA

Fig. 3 – Example of CPA model

Your choice the model of CPA, if you are willing to pay for transactions, and the product promoted can be attributed to the mass, demanded.

The CPA model has two subspecies, between which there are differences:

  • CPL the Cost-Per-Lead model. A subspecies of payment for conversions involves paying for specific interactions with the site. These actions must lead to the sending of contact information. For example, registration, sending a form with data, going to a messenger or call. If a lead is received, the funds will be deducted from the account, otherwise not. Pay for this model is set up in Google Ads, but you can’t select it directly.

The formula: The amount of advertising costs should be divided by the number of issued leads.

Features: This model will be most effective in industries where you need user contacts to complete the conversion.

Examples of industries in which it is relevant are:
1) insurance;
2) banking services;
3) medical services.

In cases where a business only pays for applications, it is easier to control the spending of the marketing budget. Using the CPL model reduces the financial risks faced by advertisers. The disadvantage of this format is the cost of the application.

The CPL model will suit you if you are willing to pay for leads in the B2B segment and in topics that can be classified as expensive.

  • CPS (Cost-Per-Sale) is a payment model for a perfect sale. The word “perfect” is key here. What is considered a perfect sale? The sending of information that relates to the payment, or the transfer of money itself, either partial or complete.

The formula: Divide the cost of an ad placement by the number of orders.

Features: The CPS model is not directly selectable in Google Ads. The way out: you can set up a campaign where you are charged for actions you take, and specify order placement as a target action.

The model will be successful for businesses that do business through the shopping cart and online payment. Suitable for most stores and marketplaces.

CPS model is a good choice if you are comfortable with the payment for the sale of goods on the site through the cart.

4. Per interaction (CPE model)

CPE (Cost-Per-Engagement) is a fee per interaction. Available in Google Ads and Facebook. That is, the advertiser only pays for visitors who have interacted with the ad. Examples of this:
Facebook Ads – got likes;
Google Ads interactive lightboxes – pointing and holding the cursor on the ad.

Formula: The formula for the Pay Per Interaction model can be calculated as the cost of placement divided by the number of interactions with it.

Advantages: CPE is a standalone payment model – in Google Ads you can set it up with a “Brand Interest” objective and a “Contextual Media Network” campaign type. On Facebook, you’ll need to select the “Interaction with Publication” advertising scenario.

Features: The advertiser only pays for users who are ready to interact with the ad.

Advertising payment models, CPE

Fig. 4 – Example of CPE model

The model payment method will work if you are willing to pay for full contact with the public that interacts with your ad.

5. For watching video (CPV model)

CPV (from English Cost-Per-View) is payment for views. In this case, the advertiser fixes the requirements for video views, usually the duration, and pays only for those that meet them. Viewing an ad counts if the user has seen the entire video, you’re charged only for those who have finished watching the clip to the end.

As a standalone payment model, CPV is available in myTarget and Facebook Ads. The user initiates the viewing of the ads it’s not like intrusive ads that turn on by themselves without a chance to scroll through them (so the user feels the difference between showing and watching right away).

The formula: The amount of ad spending divided by the number of customers.

Advantages: If the user skips the spot before the viewing event, you won’t have to pay for the display. This way you can screen out users who are not interested in communication for free.

Advertising payment models, CPV

Fig. 5 – Example of CPV model

Features: Effective for paying for media ads, when gathering an audience for remarketing. It is better to use CPM or CPA models to get maximum reach.

If you run a commercial at the top level of the sales funnel, the model is fine. Once you’ve gathered an audience of interested individuals, it will be easier for you to set up retargeting for them and start the next stage of the funnel.

6. Per app installs (CPI model)

CPI (from Cost-Per-Install) is the charge for installing one app. It is clear that this model is most popular in affiliate networks, which are used to advertise mobile applications.

The CPI model, as a standalone payment model, is set up for the “App Advertising” goal in Google Ads and in myTarget.

The formula: Ad costs divided by the number of installations by users.

Features: Installing an application is easy to fake, there are a lot of download tasks on exchangers, so the risk of getting the motivated traffic is always left. The disadvantages include the relatively high cost of advertising.

Advertising payment models, CPI

Fig. 6 – Example of CPI model

Paying for the number of installations of applications is effective for you if you are looking for quality traffic and benefits in the long term in terms of conversions, while the average price per installation is acceptable for you.

7. How to choose the right model for you

Let’s summarize after listing all the possible models.

Suitable for your business, the payment model can be successfully selected only on the basis of the ultimate goal of promotion. You have to determine it yourself. The use of advertising payment format directly depends on the marketing strategy which the company implements.
Look at the feasibility, combine the sources of traffic and choose the appropriate model depending on the budget of the advertising campaign. Choose effective tools only according to your objectives.

The CPC model is suitable if you want to quickly increase traffic, to bring customers to the site right now. If you pay per click, you get targeted visits to the right pages and the maximum number of clicks at a minimum cost.

CPM is relevant for brand popularization when you need to create a loyal audience and have enough budget for that. So you get the maximum number of impressions.

A good return to the advertiser is guaranteed by CPA, if you are not ready to take the risk, draining the budget on clicks and displays. So you will pay only for the result, but also as the main channel for attracting customers, the option cannot be considered. You should not choose this payment model for direct sales and regular customer acquisition.

CPL is a great option for working with advertising platforms. With this model you will be able to get subscribers and pay only for subscription. Or offer a discount for reposting a product or service in the social network, it will be counted as a conversion. This way you insure against inefficient spending of the advertising budget.

By approaching the advertising strategy comprehensively, using different models for different cases and products, you will see the result – successful advertising campaigns, increased profits and increased recognition among the target audience.

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