Businesses have an online presence and consumers are increasingly turning to the internet for their needs, so it is not surprising that online advertising is increasingly taking precedence over traditional advertising.
The main contracting models
In the market, if we refer to digital media, there are four main contracting models:
- Cost per thousand (CPM)
- Cost per click (CPC)
- Cost per lead (CPL)
- Cost per sale (CPV)
Many of the companies that come asking for this type of advertising do not know the difference between them or which one best suits their needs, so before making a decision, a study of the objectives to be achieved and the target audience we want to reach should be carried out.
I am going to try to explain in a very summarised way the general characteristics of these 4 advertising contracting models for online campaigns.
To understand what I am going to explain, I would like to make some clarifications:
Support: When we talk about Support, we are referring to the medium (for example, a website) where an advertisement (banner) is going to be placed. Advertiser: The person who is going to contract any of the models for advertising.
Impressions*: When a user (internet user) accesses a website (publisher) and a banner (advertiser) appears, this will be registered as an impression.
Cost per thousand (CPM)
The cost per thousand is a system that consists of paying a certain amount for every thousand impressions a banner receives. In other words, you pay for the banners that a thousand users have viewed on a website, regardless of whether or not the user clicks on them.
For a publisher, this business model is very profitable and also fair, as the publisher always gets paid (as long as it receives visits from users), regardless of whether or not the banner is clicked on. If we think about it, it is fair because, at the end of the day, the publisher charges for renting space where the advertiser will place its banner.
As for the price of a CPM, it can vary from €4 to €70 or more. The price is determined according to different variables that would be enough to write another post, however, I will point out some of them so that you can understand the rules of the game a little.
For example, the price can vary depending on the number of impressions that are contracted. Scaling is usually applied depending on the number of impressions contracted. It will also vary depending on the medium used to serve impressions (it is not the same to advertise your banner in elmundo.es than in any other less known website with less traffic).
Of course, and this applies to any of the four models, the price variation will also depend on the market situation and, of course, on the negotiation capacity of the advertiser.
Cost per click (CPC)
This is a system that consists of paying a certain amount for each click on a banner, i.e. you pay for the banners that users have clicked on.
From some points of view, this business model may not be fair to a publisher because, if the user does not click on the banner, the publisher does not get paid, but regardless of this the publisher has to use its space to serve the ad. To compensate for this, the model is paid per click. Compared to the CPM, this is always much more profitable for the publisher, as a few clicks will more than cover the remuneration that would be achieved with a CPM.
This contracting model is the most common among search engines, more specifically Google. Facebook also offers the option of contracting the CPC model, however, it is more common for social networks to contract the CPM model.
As for the price of a CPC, this can vary from €0.2 to €10 or more. The price is set according to a series of variables, as in the previous model, in addition to the reasons explained in the CPM we can add, for example, the current demand and available inventory or even the prestige and reputation of the advertiser.
Cost per lead (CPL)
It is a system that consists of paying a certain amount for each registration obtained through an online form, i.e. you pay for those users who leave their personal data, such as name, e-mail, age, population, etc.
This business model can be quite profitable for an advertiser. It is a system that may seem unsupportive of the publisher, as success depends on the advertiser’s ability to persuade with their offer. On the other hand, for the publisher, this tends to be a well-paid system.
As in the previous models, the price can vary according to different criteria, such as the number of fields in the form (bear in mind that it is not the same to fill in the name and email address as to have to fill in the size of the T-shirt you wear… in this case, the user will probably leave it halfway and not even send the form). Another variant can be the type of product or service for which the lead is intended (i.e., it is not the same to ask to fill in some data in exchange for discount vouchers for an amusement park, than to request data to receive information on high-cost university courses).
Cost per sale (CPV)
It is a system that consists of paying a certain amount or a percentage for each sale achieved, i.e. you pay for those users who buy something through the Internet thanks to an online advertising campaign. This means that users are not only impacted by an impression, but they also have to click on an advertisement or creative sent, for example, by e-mail, land on the advertiser’s website and buy.
This business model is the most demanded by advertisers, but, at the same time, it is the most rejected by publishers.
The publisher has to understand that CPV is a system that will only make a profit if the traffic that accesses the advertiser’s website makes one or more purchases, therefore, the publisher bears all the risk, i.e., if it does not sell, the publisher does not get paid.
The price of this contracting model is usually marked by a percentage (usually around 20%), however, we can find agreements where a fixed price is paid, this depends on many factors, such as the price of the product or the type of product we are talking about.
It is important to know that if we opt for this type of contract, we must be clear about the following:
The support, in this case a website, must be sales-oriented.
It is necessary to study the offer and know if it is competitive with respect to the competition. In addition, the price, logistics, brand reputation, etc. should also be studied.
You should know what attractions, i.e. discounts, promotions, gifts, etc., are attached to the sale of the product or service.
Be sure that the publisher working on a CPV campaign has sufficient margin over the initial estimate of what it will cost to run a campaign of these characteristics.
It is also necessary to know what the average selling price is.
Once the marketing plan has been drawn up, we may find, on many occasions, that it may be appropriate to use several contracting models to obtain better results. When more than one business model is combined or combined CPV+CPL or CPV+CPC systems are used, we are generally talking about mixed models or agreements.
Remember that the prices of all contracting models will vary depending on the current market situation and, of course, on the good negotiation of the advertiser.
Search engines as service and hosting providers
Currently, both search engines and service and hosting providers offer an easy and simple way to contract these models for online advertising, however, and as a piece of advice, I will tell you that the success of online advertising is not focused on the quantity of ads but on the quality of the campaign, therefore, and I repeat, as advice “look for a professional, who analyses your target, your audience and who sets up a good campaign by accessing the most appropriate contracting models, so that you can obtain better results”. You may think that by doing it yourself, you will save a lot of money, but the reality is that, if the campaign does not work, the end result will be the loss of your advertising investment without reaching your target.
