Online advertising can be intimidating if you don’t understand different advertising compensation methods and how they are calculated. Here is a quick guide on the most popular methods:
Cost-per-click (CPC)
- Used to calculate the cost per click (e.g. Google AdWords)
- CPC = Advertising Cost / Number of Ad Clicks
- Example: $2,000 / 80 = $25 (cost-per-click)
Cost-per-acquisition (CPA)
- Used to calculate clicks, online sales, form submissions, signups, registrations, etc.
- CPA = Cost / Acquisitions
- Example: $4,000 (advertising cost) / 250 (newsletter signups) = $16 (cost-per-acquisition)
Cost-per-mille (CPM)
- Cost per 1,000 Ad impressions. Used to calculate and compare advertising performance
- CPM = (advertising cost / impressions generated) x 1,000
- Example: $10,000 (advertising cost) / 500,000 (estimated impressions/audience) = 0.002 x 1,000 = $2
Cost-per-lead (CPL)
- Used to calculate the number of leads generated by an advertising campaign
- CPL = advertising cost / number of leads
- Examples: $1,500 (advertising cost) / 120 (leads) = $12.50
Cost-per-installation (CPI)
- Cost per installed app. Often used in mobile app advertising
- CPI: advertising cost / number of installations
- Examples: $6,000 (advertising cost) / 300 (app installations) = $20
Irrespective of the marketing channel (search engine, email, social media, display ads, mobile ads, etc.), a good understanding of different advertising compensation methods is essential in growing your business with online advertising.
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