What are CPM, CPC, and CPA?

In the world of online advertising, there are three main types of way for a franchisor to pay for advertising, CPM, CPC, and CPA.

First of all, let’s take a second to define them for you.

CPM (Cost Per Mille) – The amount of money an advertiser needs to pay for 1,000 impressions or views.

CPC (Cost Per Click) – The amount of money an advertiser needs to pay for 1 click.

CPA (Cost Per Action) – The amount of money an advertiser needs to pay for 1 action. For example, the franchisor only pays the advertiser only pays the platform if someone were to complete a contact form.

(N.B. It is very easy to calculate the cost for one impression by dividing the CPM by 1000. However, due to the fact that this is the way the industry has evolved, prices are almost exclusively quoted in terms of cost per 1,000 impressions)

While each of these deals are different, they are all linked together by fairly simple calculations:

Linking CPM to CPC – The link between CPM and CPC is click-through rate (CTR). CTR is calculated as Total Number of People Who Click An Ad / Total Number of People Who View An Ad.

Linking CPC to CPA – The link between CPC and CPA is conversion rate. Conversion rate is calculated as Total Number of People Who Take an Action / Total Number of People Who Click.

So, as a franchisor, if you know you’re click through rate and conversion rate, you can easily calculate the relationship between all three metrics.

Here’s an example:

Franchise X’s banner ads have a click-through rate of 1% and 10% of people who click on the ad end up filling out a contact form (the “action” in this case.)

That means that every 1,000 impressions would result in 10 clicks (1,000 impressions x 1% CTR) and those 10 clicks would result in 1 lead (10 clicks x 10% conversion rate).

Here’s a calculator that can help if you ever need to know the relationship between the three.

Now that you’re armed with the ability to differentiate between the three metrics, where can you find them in use?

Many sites will offer you the ability to choose which type of advertising you’re interested in. For example, Google offers its advertisers the ability to choose between both CPM and CPC. However, the vast majority of ads on Google are purchased on a CPC basis. For more on whether or not you should use Google, click here.

Other platforms’ include:

• Facebook – CPC or CPM
• Bing – CPC mostly
• Display Ad Networks – Mostly CPM although some will entertain CPC and CPA proposals
• Email Networks – All three metrics are common

Given that a lot of advertisers will be flexible with you as a franchise in terms of which metric they get paid based on, it’s important for you to have a good sense of what your CTR and conversion rate are for different sources.

It’s not uncommon for one source e.g. a display network to have a CTR of 0.1% and a conversion rate of 1% while another source e.g. an email network to have a CTR of 5% and a conversion rate of 10%. In this case, you can bet that the prices for the email network will be significantly higher than display network.

Have a question about CPM, CPC, and CPA? Shoot us a note!