Online Display Advertising: Cost Based Models

Whenever I am having a meeting with the clients and present a media plan based on impression / conversion they often wonder what I mean by CPM. Clients also ask me that they have heard a lot on being Online Medium as totally measurable and ROI driven but wonder how do we really make that happen. They sometimes are so ignorant that they even ask me to suggest what will work best with different models that are available. To answer all those queries I thought of mentioning it in my blog and refer them to the same in case they ask me on this sometime again.

Evaluating display ad campaigns on a cost basis allows marketers to track the efficiency of the channel and begin some simple comparisons, such as comparing banner ads and search on their "cost per click" (CPC) or even television and banners on "cost per unique viewer."

CPM (cost per thousand impressions) has been popular since the start of online advertising. CPM remains one of the most popular cost metrics used, though these days it's rarely the only metric employed for a campaign. It allows simple comparisons between campaigns and future opportunities (many publishers use this on their public rate cards).For example, even if marketers pay for a campaign on a cost-per-click basis, they can get reporting on total impressions and simply divide their total spend by impressions and multiply by 1,000, thereby generating a similar metric across differing campaigns. Nonmarketers such as CEOs or CTOs can often more easily relate to this type of measure than to online-specific metrics, such as time spent interacting with an ad, that are less directly related to costs.

CPC is a very popular metric for marketers trying to drive direct action from an advert. More than 65% of database marketers in a recent survey say they use response rates as a key metric. However, it can also lead to advertisers paying for many clicks that are not from the target audience, such as clicks by mistake or invalid clicks from Web crawlers, and even expose them to click fraud. As a marketer, using your own ad serving tool for measuring clicks (and visitors) can help establish a standard measure, rather than trying to compare metrics from a variety of tools for each campaign.

CPV (cost per visitor) gives insight to Web site owners. CPV is where advertisers pay publishers based on how many viewers of display ads then actually visit the advertiser's Web site. These metrics are most useful for advertisers aiming at driving further interaction from consumers, rather than general brand awareness or attitude, and of course take no account of what the visitors do when they get to the Web site; they could, for example, leave immediately once they arrive on the landing page.

Some marketers now impose stricter rules on what counts as a "visit" (which is sometimes still called a "click"), such as "visitors spend at least 3 seconds on the landing page," to get over some of these problems.

CPA (cost per acquisition/conversion) gives a metric comparable across channels. CPA metrics allow marketers to measure success based on customers acquired through a campaign. Of course, "acquired" may have different meanings for different marketers: For a retailer it may simply mean a site visitor or someone who puts goods in the shop's online basket or perhaps only those who actually buy.

For brand marketers, it may be measuring those who click through to a certain area on a Web site, those who sign up for an email newsletter, or those who take some other type of direct response activity via the ad landing page like asking for more information on debt management, for example. Google has heavily promoted this as a metric, with CPA management tools included in its AdWords product and within the affiliate network (previously known as DoubleClick Performics Affiliate). Introducing some type of "quality" measurement within the definition of acquisition — so, for example, only counting those email subscribers who remain subscribers for three months — helps marketers assess success on a more valuable scale than simply volume.

CPE (cost per engagement) is emerging as a metric. CPE is a newer ad model whereby advertising is offered free, with advertisers paying only when viewers actually engage with the ad itself (thus differing from CPA, which looks at consumer activity post exposure). "Engagement" can be defined in a number of ways, such as completing a survey within the ad, entering a competition, or watching a certain amount of video. Online video ad providers pioneered this payment system in 2008.

This method is seen to push back more responsibility for ad performance onto the ad creative than other methods such as CPC, which were thought to place the bulk of the burden of performance onto the publisher. It is also a way of measuring interaction with newer types of creative — such as video ads or ads with product comparison tools within them — that may drive significant interaction but not actually click-throughs. However, as "engagement" means something different for every marketer, such metrics are not comparable across campaigns even for the same marketer, limiting their value.