How do you determine your best option for Web advertising? It can be very confusing to go through the various choices available in terms of ads and revenue models. The best choice for you will ultimately depend on the audience behind your site. The following overview should help break down the various pros and cons behind each of the most common web advertising revenue models.
Cost Per Impression (CPM)
This was the first form of ad revenue when websites began advertising, and remains one of the most simple types of ad revenue. The CPM ad refers to the cost per thousand impressions, representing the amount the site holder is paid for every 1000 ads they show. To give an example, let’s assume that an ad campaign will pay $1.00 CPM. This means that you would earn 1/10th of 1 cent every time that a user views the ad. Therefore, you would earn a dollar for every thousand views.
In reality, you will likely not receive the total amount for each impression. This is because if you go through an ad agency, they take some percentage from the income. Furthermore, you might only be given payment for what is called unique impressions. This normally means that you are only paid the very first time that every unique visitor looks at a certain ad. Make sure you read all the details before you calculate how much you will actually earn.
A quarterly online marketing benchmark report gives the cost per click (CPC) average across all industries as $0.71, with an average click through rate (CTR) of 1.95%. Other sources maintain that because banner ads are hardly new in the industry and often completely ignored by users, nowadays the average CTR (click through ratio) for banner ads is around 0.2%. This means that on average, a banner would have to be shown 500 times before it is clicked even once. These sources encourage other sources of advertising apart from banner ads, also they hold that some sites can still benefit depending on their type and industry. Furthermore, there are still benefits to display and banner ads as branding tools.
Cost Per Click (CPC)
Another option is geared more towards advertisers that would rather pay for immediate results instead of views. In this case, ads that are cost per click (CPC) pay a specific amount every time that a user clicks on a certain ad, usually somewhere between five and fifty cents. Similar to CPM ads, you might only receive payment for every unique (first) click from a certain user, and the ad agency might also take a percentage.
In addition, there is also a certain risk with running CPC ads: if you don’t have any users click the ad, you then don’t earn any money. However, if the target audience of the ad is matched well to your site’s audience, you usually earn more than you would from CPM ads.
Because the performance of CPC ads usually widely varies between different ads and sites, it is important to determine what is an effective CPM. This term describes how much money a certain ad has made based on how many views. To give an example, if someone runs 1000 impressions of a certain ad that pays 10 cents per click and 10 users then click on it, your effective CPM is $1.00
Cost Per Action (CPA)
While you do earn money right away if a user clicks on a CPC ad, CPA ads requires additional commitment from a user. This means that every time a user completes a certain action, you receive payment. Examples include enrolling in a subscription, filling out a survery, or buying a product.
You usually find CPA ads used with certain affiliate programs. The CPA ad campaign breaks down into two basic kinds, cost per lead and cost per sale.
In a cost per lead ad campaign, a user has to sign up or provide their contact information for you to receive payment. The user does not usually have to pay for anything. These ad campaigns usually pay somewhere between 50 cents and $3.00 for each signup (depending on the industry), and marketing professionals encourage you to research and determine your optimal cost per lead.
In a cost per sale situation, you are paid whenever a user actually purchases products. Your commission is usually some percentage of the sale price. Therefore, the amount you take home depends on the amount the user spends.
Similar to CPC ads, final effectiveness of CPA ad campaigns depend on the audience. Some are able to make significant money from affiliate programs, because they have found programs that very closely match their web audience. Conversely, if a program is not a good fit for your audience, you could be wasting time and money by running thousands of ads and not receiving any commission.
The Take-Away: Choose Your Ads Wisely
The ad campaign you choose to run will depend on your particular audience. You should spend an important amount of time experimenting to allow yourself to determine what works best for you. Make sure that you also check your effective CPM regularly and run the ads that best work for your site.
Finally, also take a hard look at the ads themselves. Try and avoid flashing ads unless they have an exceptionally good price. Users on your site will not return if they cannot enjoy your content due to a flashing ad, and you will earn less money.