Acronyms to know

When diving into search engine marketing, you will be confronted by a number of acronyms you should understand the meaning of:

• CPM = Cost Per Mille
   
• CPC = Cost Per Click
   
• PPC = Pay per Click
   
• CPL = Cost Per Lead
   
• CPA = Cost Per Acquisition
   
• CTR = Click Through Rate
   
• CR = Conversion Rate
   
• CRO = Conversion Rate Optimization

Measurement units for advertising cost

CPM, CPC, PPC, CPL and CPA are all different methods to express how cost will be calculated for your internet marketing. We will cover them one-by-one here below so you grasp the difference and select the most suited method for your campaign.

CPM

= Cost per mille, a payment method for advertising

• "mille" stands for "1000"
• Upfront agreed cost for 1000 impressions

Pro

• Vendor or product branding, product launches
• Uses in most cases banners, animated banners, video, etc. which by themselves are sufficiently expressive to pass the marketing message even without the consumer clicking them.

Contra:

• The cost you pay has no relation to the success rate (e.g. people clicking it). You might be showing your add on a location where it does not work, but you would still have to pay the full amount while the marketing result is poor.

Usage

• Mainly banner advertising (Irritating ?)
• Use it for product launches of rather expensive products (e.g. car model)

Cost

• Mainly determined by the popularity of the website showing the banner
• Typically goes from 0,05 cent/mille on a low popularity till 10 Euro/mille on a popular website

Assume an ad on the website of a local newspaper.

• Assume the website has 200.000 visitors/day
• Assume 10 €/mille
• Daily cost = 200.000/1000 x 10€ = 2000€

What is the ROI ? (Return On Investment)

Let's have a look for an inexpensive product: we want to place on that newspaper website an ad for roller pens using a cost per mille system. Would this work ?

• Assume 1% banner click/show (usual value for banners)
• Assume 1% buy / clicked banner
• Assume product value 2€ (e.g. a roller pen)
• 200.000 x 1% x 1% = 20 sales at 2 €
• ROI cost 2000 € <> revenue 40 €

We got ourselves here a real marketing disaster... Our marketing cost is way higher then the revenue we can expect.

CPC & PPC

Consider the two synonyms: CPC (Cost Per Click) and PPC (Pay Per Click) are a payment method where you will only pay for your advertising if people actually click it.
 

Pro:

• CPC ~ PPC: you pay only when the advertising is clicked. So if you show this ad on the wrong place, you won't have to pay! Great!

Contra:

• In most uses, your advertising will only be displayed if a related search operation is performed. This might not be a good method for "brand marketing" or "product launches", wanting to reach people who have the right consumer profile, but are not actively searching (yet) for your product.

Usage

• Search engines (Google, Bing, Yahoo)
• Only when advertising relevant for search action

Cost

• expect a range from 0,01 cent/click ... up to 50 Euro/click
• Variable costs (auction system)
• e.g. "car" higher, "fish hooks" lower price as on "cars" there are many companies with a large marketing budget...

Cost control ?

• Use max limit on the cost per click and on the daily volume

ROI ?

• You will know from the adwords reporting the number of clicks you get
• Count # conversions & associated profit (Using tricks such as "landing pages" (will cover this later) you can identify customers coming from that add, and count how many actually buy or convert)
• Break even: Sum(profit) = Sum(cost clicks)

CPL

CPL, or Cost per Lead is yet another method to charge for internet advertising. We still go one step futher: Now you will only have to pay for your pub if people actually leave some personal data.

Cost per Lead

• You pay for a filled in & submitted form
• No cost for “click” or “displays”

Pro

• Even more proof of an interested consumer, as the consumer was even willing to fill in a form. So less ad money wasted.
• The website displaying the ad is stimulated by commission to do a good job (of having you fill in the form)

Usage

• Form for proposal request, extra information,...
• Website displaying advertising gets commission for submitted
• Intermediary marketing service provider in between
• Affiliate program (commission based advertising)

CPA

CPA or Cost per Acquisition is quite similar to CPL. The main difference is that we are again one step further in the sales cycle: Now you will have to pay after getting a conversion on your website.

• You pay for each acquisition (~conversion)
• e.g.: new customer, filled in form, lead, price quotation, subscribes to newsletter, buys,...
• No cost for “click” or “displays”

Pro:

• You only pay your ad if a visitor actually takes a pre-defined action on your website (subscribe to newsletter, request quotation, order a product,...)
• Website displaying advertising is stimulated by commission to do a good job

Usage

• Website displaying advertising gets commission for submitted
• Intermediary marketing service provider in between, linking and arbitrating between advertiser and publisher
• Quite similar to CPL