Quick Theory Lesson: CPM vs CPC

2 replies
Dear Warriors,
I was responding to a thread where someone asked how to buy advertising on facebook, and I thought this response might be applicable to more people so I thought I'd start a thread.

The theory of when to choose CPM advertising vs. CPC advertising, on facebook, or any other platform for that matter is quite simple.

1) Begin buying CPC advertising.... You will pay per click.
Suppose the CPC for your target audience is $1. Facebook also has a CPM (Cost per 1000 Impressions) price for this audience. Suppose it is $3.

2) Optimize your creative and other parameters (audience, for example) advertising so you are getting more then two clicks per 1000 impressions. You will be spending more money, but getting more clicks now - your Effective CPM (ECPM) price is now $2, since you are paying for two clicks per 1000 impressions. At this point it is still cheaper to buy clicks on the CPC model.

3) Continue to optimize your advertising. The important metric here is the Click Through Rate (CTR, clicks/impressions). Once you achieve 3 clicks per thousand impressions (a CTR of .3%) , your CPM and CPC prices are equal. (3 clicks = $3, 1000 impressions = $3).

4) As soon as you have more then 3 clicks per 1000 impressions, your ECPM rises above $3. At this point it becomes cheaper to pay for 1000 impressions and receive four clicks "free", then it does to pay for the four clicks and receive the 1000 impressions "free".

Make sense?

Glossary:
CPC: Cost per Click.
Example: 1 click = $1.

CPM: Cost per Mille - Cost per 1000 Impressions
Example: 1000 Impressions = $3

ECPM: Effective CPM. Cost/CPMs. Used to benchmark the cost of impressions when paying for advertising in any model other then CPM. If you run a publisher website, the goal is to maximize ECPM.

CTR: Click Through Rate
Clicks/Impressions - Used to benchmark the quality of advertising creative or an advertising unit.
#cpc #cpm #ctr #ecpm #lesson #quick #theory
  • Profile picture of the author Lady M
    interesting theory, I use facebook ads for a while in the past for one months and never get the hang of it. Since then, I stop looking for pattern and use CPC in a forum. I think I should try facebook ads one more time.
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  • Profile picture of the author fotoflo
    Originally Posted by writeaway View Post

    CPM is better......IF...... the network you're advertising on is in your niche. If not.... it can get quite ugly.
    I dont think one kind of advertising is better then the other. The important thing is to optimize your creative and spending, ensuring you pay less for better traffic.
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