Unlike print or TV ads, where the price of an ad is based on its circulation, many online advertising costs are based on other measurements such as click, impression or other engagement. Generally, online advertising costs can be better monitored and controlled.
With any form of advertising, the broader the reach of your ad may decrease the efficiency of your ad, meaning you may not get the quality leads you want for the big price tag you paid. Quantity over quality. The opposite is also true if your ad is too narrowly targeted; you may lose opportunities to reach the right people. Something to keep in mind as you try out various online advertising campaigns.
Here are some of the cost models you should understand when considering online advertising:
CPM - cost per mille, or cost per thousand
A per mille (in Latin) means per 1000, therefore CPM means cost per one thousand impressions. In other words, you pay per every thousand times your ad was shown to someone, regardless of whether it was clicked on or not. This model is mostly used in display ads such as banners, and is used for broader reach advertising purposes. The same term is also used in other traditional media. With a CPM model you truly have to have that larger audience to make your ad most effective.
CPC - cost per click
CPC is getting more popular and well-known thanks to Google AdWords. Cost per click means you simply bid on a search term (relevant to your business) so an ad for your company website will show up among the search results. If your ad gets clicked, you pay. For example, if someone searches on Google for “Seattle web hosting company”
and our ad shows up as a sponsored link because we bid on that search term, we will be charged if they click into our site. In CPC, you can pay the highest bid price for the keyword to get your ad on the first page of Google, or you can choose to pay less per click to be lower on the page, or on the second or third page.
CPE - cost per engagement
Engagement-based pricing charges you on the activity your ad gets. An engagement can be playing a video or hovering over the ad for a certain amount of time. For Facebook ads, it may be filling out an inquiry form or making a phone call.
Whatever ad structure you choose for your budget, it’s important to find the right balance between distributing your ad within a healthy reach and to your target audience.