Marketing Dictionary. CPC, CPM, CPA, CPL - what these metrics show and how to calculate them
These are some of the most popular terms in marketing. We analyze each abbreviation, give formulas and explain when these indicators are used.
CPC, CPM, CPA, CPL are abbreviations that denote different advertising payment models. And these are common marketing metrics — indicators that are used to evaluate the effectiveness of marketing at different stages of the sales funnel. They can be calculated regardless of which model is used to pay for advertising.
The listed abbreviations are among the most used terms in marketing. In the material we will figure out how they are deciphered, how they are considered and where they are used.
- What is CPC
- What is CPA, CPL, CPO
- What is CPM
CPC - Cost per Click
CPC stands for Cost Per Click. This is a model in which the advertiser pays for user clicks on ads or banners. It is also a metric that shows the average cost per click — that is, how much the advertiser will pay for each click on the ad and the user’s transition to the site.
Where the CPC payment model is used. Pay per click is a common advertising model. Here are a few channels where it is used:
- Contextual advertising in search results. These are ads that search engines like Google show based on what the user is searching for.
- Google advertising network. The network includes sites whose owners have agreed with Google to place ads. Ad units can be both text ads and banners.
- Targeted advertising. This is advertising on social networks, most often on Instagram and Facebook. There are different formats of advertising in social networks: promotional posts, ads on the side of the news feed, and many others.
- Teaser advertisement. These are advertisements that grab attention with a provocative headline or image. Such advertising is bought on special platforms — in teaser networks. Website owners connect to these networks to advertise and earn money.
How to calculate the CPC metric. To calculate the cost of a click, you need to divide the amount of advertising costs by the number of clicks:
CPC = ad spend / number of clicks
Let’s say an advertiser sells bouquets through a teaser ad. In a week, he spent $500 on ads and got 250 clicks. So CPC = 500 / 250 = $2.
What does CPC show?
CPC is a metric that shows the effectiveness of attracting traffic. If a company pays an average of $2 per click to Google, and its direct competitors pay $1 per click, this means that competitors’ ads seem more interesting to the audience.
Perhaps competitors’ ads have a brighter design or their texts are stronger. Or maybe the offer of competitors is more attractive.
However, the metric does not show the effectiveness of marketing in general. It does not allow you to understand how many sales or leads traffic brings. You can attract an audience for $2 per click, but only one in a hundred users will buy. And you can attract clicks for $ 5, but every third will buy. To make one sale, the company will spend $20 in the second case versus $100 in the first.
CPC is highly dependent on niche and placement. At Google, the average CPC for low-competition industries can be $1. At the same time, the price of a click in a niche, for example, banking services, can reach $100.
CPA - Cost per Action
CPA is a model in which the advertiser pays only for completed targeted actions. They can be applications on the site, purchases, installations of applications. In addition, CPA is a metric that shows the cost of a target action. Its value can be calculated regardless of which model the company uses to pay for advertising.
There are several types of CPA model, which differ from each other in targeted actions:
- CPL (Cost per Lead) — fee for leads, or the cost of a lead. Here the result is the contacts of a potential client. These contacts will be used for promotional mailings, advertising launches and sales.
- CPI (Cost per Install) — the cost of installing an application or program. Used for both desktop and mobile applications.
- CPS (Cost per Sale) — payment for the sale, or the cost of the sale.
- CPO (Cost per Order) — payment for the order, or the cost of the order.
- CPV (Cost per Visit) is the fee for visiting a landing page. The result is a visit to the page within the specified time. Such a target action is of interest to companies that have posted a product catalog or price list on the site, but their products are bought offline, or companies that want to improve behavioral factors on the site.
Where is the CPA payment model used?
It is used in CPA networks. CPA networks are intermediaries between advertisers and webmasters. Webmasters attract traffic at their own expense — for example, they buy ads — and advertisers pay for applications. Many large companies are advertised through CPA networks: banks, insurers, online stores.
Analogs of the CPA model can be found in other systems. So, Yandex.Direct has a model with a conversion fee. The advertiser pays fixed amounts for achieving the goals that he has set in Metrica. There is a similar model in the Google advertising system — Google Ads.
Despite the large number of CPA subspecies, one formula is used for calculation. To find out the cost of a target action, you need to divide the amount of advertising costs by the number of target visits.
CPA = advertising spend / number of targeted visits
Target visits are visits to the site when users performed the actions needed by the advertiser.
For example, $5,000 was spent on advertising in a week. The target action is a paid order. The advertiser received 100 paid orders. It turns out: CPA = 5000 / 100 = $50. This means that the cost of attracting one client is $50.
In any case, you will have to pay more for a targeted action than for clicks and impressions. But at the same time, the advertiser will know that the buyer has completed the desired target action.
What does CPA show?
The cost of the target action is often used to evaluate the effectiveness of marketing in general. CPA metrics show how much a company spends on customer acquisition. The numbers can be compared to revenue or profit from each sale.
A simple example of such a comparison looks like this. If a company spends $100 on a single sale and earns $600 on it, marketing is profitable. Such calculations are part of the unit economics method.
CPM-Cost per Mille
Sometimes you can find a transcript of Cost per Millenium. CPM is the price an advertiser pays for 1,000 ad impressions. It is also a model where the advertiser only pays for banner or ad impressions.
To calculate CPM, you need to know how much advertising budget was spent and how many views were received.
CPM = (advertising budget / number of views) × 1000
For example, a developer wants as many people as possible to know about his brand and new project. Therefore, he showed banners advertising new buildings for a week.
During this time, he spent $5,000 and his ad was seen 50,000 times. CPM = (5,000 / 50,000) × 1,000 = $100. It turns out that the developer paid $ 100 for 1000 impressions.
Where is CPM used?
Pay per 1,000 impression ads can be run on social media, search engine, and teaser networks. When setting up advertising, you can choose which model to pay for it — CPC or CPM.
Most often, the CPM model is used when they want to get coverage, not sales. In other words, when a company wants to show its ad to as many users as possible.
Also, advertising for 1000 impressions is launched by new companies in the market or companies that have released new products. It will allow you to tell about yourself to a large number of people.
What does the CPM metric show?
This is the cost of showing ads to the target audience. Most often, the metric is used to compare the price of advertising in different channels. For example, in one channel, the company buys ads for $10 per 1,000 impressions, and in the second channel, it costs $20. By placing ads in the first channel, you can save.
However, CPM does not show the effectiveness of marketing in general. Traffic from a cheap channel may not turn into sales, but traffic from an expensive one may turn out to be profitable.
Briefly about payment models
CPC — pay per click. This model is the easiest way to control advertising costs and compare advertising campaigns.
Pay-per-click ads can be run for almost any advertising purpose: to increase sales, to remind old customers about yourself, to drive traffic to the site. But to increase brand awareness, it’s better to run pay-per-impression ads.
- CPA is pay for actions. There are several types of CPA: CPL — pay for user contacts, CPI — pay for installing applications, CPO — pay for the order, CPS — pay for the sale, CPV — pay for visiting the landing page.
- CPM — pay per 1000 impressions. The model is often used in campaigns whose goal is to show ads to as many users as possible.