What are CPA, CPM, CPC and CTR?

Mark Sheerin
Nov 4, 2022
3 min read

Understand the 4C advertising payment models, their advantages, drawbacks and when best to use them.

There are 4 main advertising payment models online.

Understanding them and when they should be used is the key to making sure you fulfill your marketing goals and make money.

CPM: Cost per Mille
CPC: Cost per Click
CTR: Click Through Rate
CPA: Cost per Acquisition

CPM-Cost per Mille

You pay for every 1000 impressions (views) of your ad

CPM is a good top-of-funnel strategy for awareness & promotion of your brand

Formula:

(Total Impressions x CPM Rate) / 1000

e.g:

1,000,000 views @ $20 CPM Rate

= $20,000 Ad cost

CPM Pros:

Exposure to a large, broad, or targeted audience
You can set & manage your costs according to your budget
Increase your brand/product awareness
Test, find & understand what works with your audience

CPM Cons:

Quality of traffic isn't guaranteed: Bots & repeat views by the same individual are often counted in the metrics. There can also be a risk of fraud on the part of the publisher. The process and mode in which metrics are collected are not always transparent and are open to exploitation.
If the ad has a CTA (Call to Action) then CPM is prob not the best model: stats may not be reliable
CPM does not work well on low-traffic sites

CPM is best used:

If you are a startup/have a new/unknown product & need to warm your audience to it
You want to build/reinforce awareness of your brand in your target market
You want to discover who your target market is
Ad is on a high-traffic platform

CPC "Cost Per Click"

You are charged for each click on your ad

Good mid-funnel strategy because it drives conversions

A conversion can be:

Website visit
Purchases
Newsletter subs etc.

Formula:

(Total Cost/Number of clicks on ad) = CPC

CPC typically used by performance advertisers who want to focus on direct response campaigns

That means results now please!

Coupled with great copy, this gets results... fast!

(P.S I can help you with that)

The other benefits of cost per click are...

CPC Pros

Cost effective: You only pay when a user clicks & visits your site
Targeting: Choose your audience, demographics, location, language etc.
Flexible: Make small adjustments as you gather data & your campaign progresses to improve

CPC Cons

It's active: You need to continuously watch & optimise CPC Campaigns
Skills: Many businesses go with a specialist
Costly: If you aren't paying attention costs can quickly add up
Clicks and visit dont always = sales You need a great offer too so...

Use CPC when:

You have a set budget & need to manage costs
You want to drive traffic to your site
You know your target audience and have a message that you know will resonate with them
You need immediate results
There's already good awareness of your brand/product

CPA: Cost per Acquisition You only pay when the target customer completes a desired action

Works best at the bottom of your sales funnel (You pay only for profitable engagement.)

What is a completed action?

A completed CPA action could be:

•A purchase

•A free trial

•A download

Some good CPA models are affilate marketing/ lead gen agencies where cost and risk are farmed out to a third party

CPA Formula

(Total Spending / Number of Conversions) = CPA

Use CPA when:

You have limited funds
High awareness of brand/ product or no brainer offer
Have a strong affiliate strategy & offer
You have a hotshot agency on the case
You need fast results

Finally...

Measure the efficiency of these campaigns with

CTR: Click Through Rate

Measures the percentage of people who clicked on your ad against the total number of people who saw the ad

More clicks = a more effective ad campaign

Formula

(Total clicks/Number of impressions) x 100

Essential factors for success in all these methods are:

• An irresistible offer

• Excellent copywriting

• Positioning - The "Why" of your product/service for your customer

• Monitor campaign performance - double down on what is working

If you need help with copywriting, positioning, funnel strategy and formulating your offer my DMS are open or email us: copy@marksheerin.com