As a publisher, you don’t necessarily have to know precisely how to run a digital advertising campaign and be an expert of its charging methods. However, knowing how it works can only help you understand the strategy of the advertisers you cooperate with and presume whether it will bring satisfactory results. After all, your ad inventory enables the existence of these marketing campaigns! So let’s get to reading!
The choice of pricing model should take into account many factors and can vary depending on the goal an advertiser wants to achieve or the type and stage of their marketing campaign. The top of the marketing funnel requires different solutions than those needed at the bottom of it. Even if it’s not your task to decide on the advertiser’s campaign’s pricing model, it’s worth knowing how your revenue is generated. There’s a huge variety of possibilities when it comes to media buying models in programmatic. The system brings plenty of benefits for both advertisers and publishers, as it automates their actions, which improves the effectiveness of monetization processes. We’ve compiled a condensed list of the most commonly used methods you may encounter on your publishing journey.
What is a pricing model?
Simple speaking, a pricing model measures the cost an advertiser has to pay a publisher to achieve a specific goal of their marketing campaign. It’s crucial to understand because, in the end, that’s what the publisher’s revenue relies on – so depending on the campaign effectiveness and the chosen pricing strategy, it can be satisfactory or the opposite.
Ad pricing models are determined on the basis of different metrics, factors, and circumstances, and thus they can be charged by means of various set criteria. Depending on what advertisers wish to achieve, the pricing model can be based on different user’s actions, like: clicking an ad, displaying it, taking some kind of action, or buying the advertised product in their online store. The most important thing here is that these models are chosen according to the goals of the particular advertising campaign.
The most popular media buying models
You may have come across some of them, but probably – given their numbers, there are plenty you have never heard about. Undoubtedly, the most commonly used ones that you might notice for example in received ad revenue reports, are CPM (Cost Per Mille) and eCPM (effective Cost Per Mille) and RPM (Revenue Per Mille). They all relate to a thousand ad impressions, but from different perspectives – the first ones indicate the costs, so are more useful for the advertisers; while RPM is a rather publisher-oriented metric, since indicates the generated revenue. However, there are more ways of media buying, so let us go over six other most common ones in the following list.
CPA – Cost Per Action
CPA is a model that charges an advertiser every time a user performs a specific action. Thus, advertisers value this method as it’s the most effective way to engage users. What is most important here is that the action isn’t necessarily equivalent to making a purchase – the fee is charged only when a given action is performed. The most popular kinds of actions include placing an order, filling out a form, going to a landing page, etc. The thing is that users rarely take action at the beginning of an advertising campaign (when they don’t know the advertised brand). Additionally, this method usually requires historical data based on previous users’ behaviors, to adjust the type of action to targeted users. That’s why CPAs are often used at the end of the marketing campaign when the users already know the brand, so they are more likely to take action or purchase a product at the end.
CPA = total ad campaign cost / total number of conversions
CPL – Cost Per Lead
It’s essentially a subtype of CPA and so – very similar to it. However, this time, an advertiser pays only for a specific action the user performs. It’s often an action leading to acquiring personal information, e-mails, other contact details, etc. CPL is the amount advertisers pay to publishers for the leads generated from advertisements placed next to the publisher’s content. CPL is oriented toward a specific result, so it’s one of the most popular pricing models in performance marketing and it’s the best choice for advertisers wanting to get to know their audiences to understand their needs.
CPL = total ad campaign cost / total number of leads
CPC – Cost Per Click
CPC is the simplest media buying model to understand. It works in such a way that the fees are charged only when an ad is clicked by the user (regardless of how many times the ad has been shown to them). With the simplicity of CPC comes a certain risk of doing accidental clicks, on which the publisher can generate inadequate revenue. That is why service providers like Google introduced solutions such as Confirmed Click to make sure that the system operates accurately. Having that in mind, only the users, who are potentially interested in the advertised product or service, click these advertisements. What’s worth mentioning is that the display itself does not generate any charges to advertisers – the users need to show an interest in the displayed ad. When it comes to the marketing campaign stage, the CPC is most likely to be used in the middle of the marketing funnel. This results from the fact that the user clicking an ad is probably already aware of the product and knows the brand. The whole point of CPC is to induce action in an interested user, but it doesn’t necessarily equal a purchase.
CPC = total ad campaign cost / total number of clicks
CPS – Cost Per Sale
Okay, now you know what CPA, CPL, and CPC are. They all require action but don’t specify if it ends with the sale – the most significant part of most marketing campaigns and, essentially, their main goal. That’s why some advertisers needing more result-oriented pricing models often opt for CPS. This model uses a variety of formats that redirect to the site of the advertised brand. Most importantly, the charge is withdrawn from an advertiser only when the transaction is completed. The only reason for the low effectiveness (for advertisers) of this model is usually related to high commissions. The e-commerce sector is prone to choose CPS, as it usually has high-margin products. It still allows brands and advertisers to gain significant ROI, despite the high commission rates.
CPS = total ad campaign cost / total number of sales
CPI – Cost Per Install
The mobile app market is growing, and that’s why its monetization is taking over a leading position in the digital marketing industry. Simply put, CPI is a media buying model where the advertiser pays a publisher for every installed app, instead of just the ad being displayed. If a user sees an advertisement on the website or in app that encourages them to install the advertised app, the advertiser is obliged to pay a commission to the publisher he cooperates with, who displayed the ad in question to the user. In this scenario, performance metrics are pretty easy to calculate – the more installs, the more profitable the campaign will turn out.
CPI = total ad campaign cost / total app installs
CPV – Cost Per View
This particular pricing model is prevalent mainly in video advertising. Seeing a video is usually enough for a user to get to know the brand, or at least gain awareness of it. The basic concept behind CPV relies on the advertiser paying each time the user sees an ad. The user doesn’t have to perform any action nor leave any personal information after seeing the ad – display is an only currency here. However, as with any other ad, a user can skip it (or close the window containing it). In this scenario, the commission is still paid to the publisher, as it is not required for the user to complete watching the ad. The CPV model assumes the ad has to be played for a pre-agreed minimum time for the advertiser to be charged. According to MRC (Media Rating Council) standards, for video ads, this can be two continuous seconds. Alternatively, in the CPCV (Cost Per Complete View) pricing model, the ad has to be fully played from start to finish.
CPV = total ad campaign cost / total ad views
Which model is best?
Now you know what’s hidden behind the CPA, CPL, CPC, CPS, CPI and CPV abbreviations – the most popular pricing models in the ad industry (apart, of course, from CPM and RPM). But it’s not everything! There are less popular pricing models and terms related to them, such as CPE (Cost Per Engagement) or flat fee (where fixed rate is specified). As you can see, there’s plenty of fish in this sea. Their choice depends on the advertisers’ goals, including brand awareness goals, reach goals, or sales goals.
Choosing a proper media buying model also depends on the marketing campaign stage. A marketing funnel has its rules, and the top of the funnel aiming at spreading brand awareness will need way different solutions than the bottom trying to induce a final action (mostly purchase) from the user. At the beginning of the campaign, an advertiser may opt for a pricing model which will charge for the display of an ad to get more brand recognition (like CPV). The middle of the funnel has already gained brand awareness, but that’s not enough to buy a product – here a company needs to plan other campaign steps, which require more data from the users. Thus, a brand wants to induce an action to gain more information and better target future ads (CPA, CPL). In turn, the bottom of the funnel aims to finalize the process – so, predominantly, sell a product (CPS).
For publishers, it doesn’t really matter if it’s action, installation, or sale – advertisers pay if something happens thanks to your ad inventory and that’s the most important fact for you. You should, hence, make it attractive, so that advertisers (or systems looking for proper ad spots for them – like programmatic) will want to display their ads next to your content. There are several crucial factors contributing to high ad revenue generated by digital publishers. And that’s what you should focus on!