What Is The Difference Between PPC, CPC, CPA, And CPM Anyway?
Paid Traffic Terminology
A simple guide to the different types of paid advertising
The world of paid advertising can seem scary at first. Horror stories spring to mind of people maxing out their credit cards trying to make it work, only to lose the farm. Does this mean it is all a big con? Just a way for the advertising companies to fleece poor, unsuspecting newbie ‘sheep’?
More than likely, those horror stories came about because the person telling them did not properly understand how paid advertising works. They probably did not take the time to research the method before throwing their hard-earned money at it. Not a smart move really. What did they think, they could learn as they went along by experimenting?
While that may not seem like a bad idea, paid advertising isn’t really that cheap any more, so you better be a quick learner, or have deep pockets full of cash.
Hopefully, in this post, I am going to help you understand how paid advertising really works, before you decide to spend your hard-earned moolah. Or, if you have already tried it, with little success, turn that around into something that does work for you.
Ready? Okay, let’s crack on with it…
PPC – What Is It and How Does It Work?
PPC stands for pay-per-click. So, I place an ad, and every time someone clicks on it I pay a set amount right? Wrong! This is a common misconception. Let me explain.
PPC works on a bidding system. You determine the maximum amount you are willing to pay for a click on your ad. This does not mean that is the price you will pay every time your ad gets clicked by a searcher though. Remember, this is the maximum you will pay. The way the advertising companies (let’s use Google as an example as they are the biggest and most well known) work out how much you will pay, is based on a formula.
Oh no, here we go with the math lesson. Calm down tiger, it’s a very simple one. Google has something they call a ‘Quality Score‘.
Your ad’s quality score is how relevant the advert is to where you are sending those who click on the ad. Send them to a high quality page, or site, and your quality score will be higher than a single page with little relevant content on it. Your ‘click-through rate‘ also gets taken into consideration. That is how many people click on your ad compared to how many times it is shown. The higher the percentage of clickers, the higher your quality score. The relevance of your chosen ‘Keywords‘, the words you want your ad to show for when someone does a search, also affects this score.
The way they work out your ‘Ad Rank‘ (the likelihood of your ad being placed at the top of the search results page) is calculated as follows:
Your Maximum Bid Amount X Your Quality Score = Your Ad Rank
That is one part of the formula. Now on to how the price you will pay for a click is calculated.
The price you pay = (The Ad Rank Of The Closest Competitor Below You / Your Quality Score) + $0.01
This may seem confusing (or maybe not) so let me put this into a chart to try to make it easier to understand.
As you can see, quality score matters more than how much you bid. The top ranked ad, the one that will show up at the top of the search results, actually costs less than any of the other lower placed ads. Even though the maximum bid amount is $2.00, the advertiser only pays $1.26. The advertiser in position 2 will pay $4.51 for the second spot because the quality score is so low. I hope that makes sense to you. I would like to thank Wordstream for helping me to understand this concept myself.
What Is CPC?
This is the price you will pay for a click on your ad. It stands for ‘cost-per-click‘. It is a very important number to track. If you know that you can earn $1.50 for every click on your ad but you are paying $1.75 for that click, then you need to do something to lower your advertising costs. On the other hand, if the same ad is only costing you $1.00 then you are in profit. Even so, it is still worth trying to lower the cost of you ad to bring in the most profit possible.
CPC can also refer to a fixed price cost-per-click, where you pay a fixed amount for a click on your ad regardless of the quality of the site you are sending visitors to. This is usually used when you are paying another website directly to advertise on it. They will charge you a fixed price for every click on your ad.
What Is CPA?
CPA means ‘cost-per-action’ or ‘cost-per-acquisition’. In short, you define an action that you want someone who clicks on your ad to take, and pay each time that happens (usually a fixed amount, or a percentage of a sale). For instance, your desired action could be for a visitor to sign up for a free trial. Each time that happens through a click from your advert, you would pay the agreed amount. If the visitor did not sign up, you don’t pay anything. You may have seen a lot of courses advertised lately based on this business model. It is growing in popularity because you only pay when a specified result is attained. This is different to PPC advertising where you pay for a visitor whether they leave straight away, or not.
You will still need to know your numbers though. The return from what you pay out needs to outweigh what you pay for each action, or you are on a loser again.
What Is CPM?
CPM means ‘cost-per-impression‘ or ‘cost-per-view‘. Actually, it is per every 1000 impressions (m stands for milli, or thousand). In this advertising model, you pay a set price for every 1000 times your advertisement is seen. It does not matter is it is clicked, or not. You pay for ‘views‘ of your ad.
Be wary, if your ad shows twice on an advertiser’s page, then guess what, yep, that counts as 2 views.
You need to really focus on your ‘click-through-rate; on this one. That is the number of times your ad gets clicked on compared to the number of times it is viewed. If you get 100 clicks for every 1000 impressions, that is a 10% CTR (click-through-rate). If you make 1 sale for every 100 clicks, you will need to work out how much you make from that 1 sale compared to what it cost for every 1000 times your ad is seen (‘impressions’ of your ad).
If your CTR is good, and your conversions (sales) percentage is good then this could be a good method to use. On the other hand, if you are only trying to create ‘Brand Awareness’, getting yourself known in other words, this can be an excellent choice. It is one that big companies use all the time to create awareness among consumers.
There are many different advertising platforms you can use right now. Most, if not all social media platforms offer paid advertising. Among the most popular are Facebook, YouTube, Pinterest, Twitter, and Reddit to name a few.
It stands to reason then that having a good understanding of how paid traffic works should help you decide how to use this option in the future, should you choose to do so.
While free traffic methods are usually the first option that beginners in Internet Marketing are attracted to, the truth is you pay dearly in terms of the amount of time you need to spend to make these methods work.
Everybody will probably take the plunge and experiment with paid traffic at some point. If you can make paid traffic work for you and become profitable you will likely see your Business take off rapidly from that point. Paid traffic is almost instant so results should come quickly.
There is a saying in Internet Marketing…you do not have a traffic problem, you just pay for it. If you are not seeing results then you have a conversion problem. In other words, there is no shortage of traffic but you need to be able to convert that traffic into sales to make a profit.
Well, that ends today’s post. I really hope you found it useful.
If you did, please share and you can also leave a comment at the bottom of the page.
Til next time, take care.
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