Marketers can immediately increase their campaign success by using metrics and a payment model that is closer toward the end of the sales funnel. A “sale” is more valuable than a “prospect”. A “prospect” is more valuable than an “viewer”. In direct and online marketing, if a campaign is very targeted and also uses a model that only incurs cost if they get a customer or prospect to take an action, such as purchase a product or sign up for a service, it’s guaranteed that those advertising dollars will be well spend.
The advertiser that only pays if they get a customer uses the CPA (cost per action / acquisition) model and is popular for affiliate marketing where publishers are willing to drive traffic to high quality brands and only expect payment when an action is completed. It protects the advertiser by defining the action and relating it directly to their business. If the action isn’t completed, no matter how many customers are referred, the advertiser doesn’t pay a penny.
On the opposite side of the spectrum is the CPM (cost per impression / view) model. This is used by most private websites and display advertising. If a web page gets 10,000 views per month and you charge $0.01 for every view, they can charge $100 to host an advertisers banner. There is no guarantee that any of those 10,000 visitors will necessarily see the banner but the advertiser is paying regardless. Even more complicated systems that charge for impressions as defined by the banner loading on the page doesn’t guarantee it’s above the fold. It also doesn’t guarantee that someone will see it and take the time to engage or click on it.
In the middle of CPA and CPM is the CPC (cost per click) model. This guarantees that someone (or a bot in some cases) has not only viewed your text or banner ad, but has seen it and clicked on the link. Tracked by the hyperlink redirect and not by the image loading, this model drives the success of Google Adwords and similar Paid Search tactics. Marketers like it better than CPM because it at least follows some sort of engagement, even if it’s a quick click by a researcher or competitor.
Recently Google proposes new metrics for online advertising called the Google Activate Initiative, that I believe falls somewhere in between CPM and CPC. Launching on the Google Display Network Reserve platform, the metric called “Active View” will be an enhanced impression. In other words, the impression will only count if the display ad is at least 50% viewable on the screen for at least 1 second. If the ad loads below the fold, it doesn’t count. If the viewer bounces to another page in less than a second, it doesn’t count.
This modification has huge ramifications for advertisers as the billions of dollars being spent becomes just a little bit more refined. Some marketers shy away from banner advertising because historically it has been difficult to justify, especially when stacked up against other models such as CPC. I’m personally excited to see these changes and believe it has been a long time coming in improving the efficiencies of charging on impressions.
More sources of explanation:
Mashable.com - Google Proposes New Metrics for Online Advertising
Double Click - Making the Web Work for Brand Marketers
Least Effective to Most Effective
- Cost per impression (CPM) - charged usually in the thousands for when the banner image displays on a targeted website.
- Google Activate Initiative - charged for when 50% of the banner image is visible to the viewer for at least 1 second. Also tracks the duration and percentage for deeper analysis.
- Cost per click (CPC) - charged when an viewer of the ad sees and clicks on the hyperlink to the advertiser’s landing page.
- Cost per action / acquisition (CPA) - charged when a visitor completes an action such as purchasing a product or signing up for a quote.
Watch this video below for even more explanation: