CPM or CPC: How to choose?

When a website editor wants to make money from online advertising he can choose from several operational modes: the CPM, the CPC or a fixed contract.  This choice is also a problem for the advertiser, which method would be best?  Should he pay for each prospective customer interested in his ad or should he pay for every hit?  Although these are frequent questions, the answers are never too difficult to find.

Firstly, Let me introduce some vocabulary:

CPC: Cost per click, this is the adsense advertising model. Every time a user clicks on an ad, the advertiser pays the editor.

CPM: Cost per milli (sometimes CPT for cost per thousand), this model is one where a fixed rate is set for 1000 « impressions » (this word is used in ad jargon) of the advertisement.  Capping is usually associated to wit this model.  Capping is a limit which is set on the number of impressions per user per day.  For example, an ad with a 3 cap is viewed at most three times by each specific user.

Fixed Contract: This is a fixed daily (or monthly) charge which is not dependent either on the number of uses or the rates of exchange, etc.

Now let’s look at the choice factor.

I’m an editor, so what do I do?

An editor has to juggle with several parameters:  He wants to maximise profits but he is first and foremost a company manager, and therefore he should be able to plan revenues over the medium and sometimes long term if he wishes to have a reasonable and coherent development strategy.

In order to do that, it is important to eliminate, as much as possible, the non-controllable factors in that specific environment which might have an impact on revenues.  If you take a closer look, the CPC model is, from that point of view, a pain.  Why? Because it is impossible to have any control on the number of viewers (obviously) or clicks.  Even if the latter can be increased with in site criteria, the crucial quality in question here is that of the advertiser, and that is beyond the editor’s control.  The CPM model on the other hand, gets around at least one of these problems and strategy can be planned more easily.  As for the Fixed Contract model, well, Bingo!

In short, I’m an editor, so first I look for fixed contracts with customers, then CPM and lastly, for CPC.

If we end up having to use CPC, it would be just as well to control the entire process and use affiliated sales techniques.   Also, as an editor, CPM advertising is more advantageous since it is often linked to powerful groups with strong brands and their aura reflects on the website.

I’m an advertiser, so what do I do?

Here the question is different and the answer to it will depend on the sector of activity.  Anyone with online activity (e-commerce for example) should use CPC.  This is the only means of controlling the customer targeting expenses.  This way we only pay for potential customers who have just initiated the buying process…

But, an advertising body who wants to make a name for itself must use a CPM website or Fixed rates, that way it knows exactly how much its publicity campaign will cost.  A well known company and which doesn’t sell online is a typical example of a  an advertiser using CPM. Another closely related method is sponsoring (of blogs for example), and is used mainly to build a brand/company image.

To summarise: If I am comfortable with the conversion notion, then I use CPC, if that is not the case, then I pay for CPM or use a fixed contract.