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Online advertising varies quite a bit in terms of pricing models. The cost of placing ads on a publisher’s website will depend on the kind of ad, as well as the model that an advertiser chooses for pricing purposes. Cost per action and cost per impression are common online advertising models, but what are the differences?
Cost per Action vs. Cost per Impression: Definition
Cost per action (CPA) is a pricing model that compensates a publisher of an ad for an action undertaken by a potential customer. An advertiser has the right to specify the actions that should be undertaken before compensation can be given. These actions include clicks, registration, or sales.
Cost per impression (CPI) is a pricing model that pays publishers of ads for every impression. What this means is that for every view of the displayed ad, the advertiser will pay the publisher a specified amount of money. The term Cost per Mille (CPM), refers to the cost per 1000 impressions or views, and is often used in the place of CPI.
Cost per Action vs. Cost per Impression: What it Means
CPA may be beneficial for advertisers, but not so great for publishers. It is one thing to talk about a product and quite another to compel the target audience to take a very specific course of action that the advertiser wants to see. For that reason, payouts for CPA ads are great for publishers who wield a lot of influence on the purchasing decisions of their target audience members. They are, however, not so great for publishers of ads who cannot get people to take the action necessary for compensation to be triggered. CPA ads can also be financially unsustainable for advertisers who see low conversion rates relative to the money they spend on advertising.
CPM is usually a great option for advertisers who believe that what they offer is attractive enough to create more interest simply by being viewed. Publishers who display CPM ads are more likely to get compensation because payout occurs based on views. However, publishers need to ensure that they attract high levels of traffic in order to make CPI ads worthwhile.
Cost per Action Vs Cost per Impression: The Formulas
The formulas for cost per action and cost per impression vary.
The formula for CPA is: Total advertisement costs ÷ number of suitable actions undertaken
The formula for CPI is: Total advertisement costs ÷ number of impressions
From the formulas above, the lower the number of potential consumers who take suitable actions, the higher the CPA. Likewise, the higher the number of ad impressions, the lower the CPI.
Cost Per Action Vs. Cost Per Impression: Which Way for Advertisers and Ad Publishers?
Cost per Action
If you are an advertiser, you need to be careful about opting for a cost per action pricing model. This model only works if you get the right target audience to carry out the actions that you want them to undertake. Otherwise, it will be a very costly venture.
If you are a publisher, do note that CPA ads do pay quite highly because advertisers want people to generate sales or become qualified leads. However, these ads can end up being unprofitable if you fail to convince your audience to see the required actions through.
Cost per Impression
Cost per impression is effective for advertisers in that it enables their products and services to be seen by many viewers. While it is affordable, it does not compel the target audience to carry out any action that may help generate sales and revenue. Advertisers should be aware of that.
CPI ads are great for publishers with a large audience. While the payout for each impression is usually low, with many views, the compensation adds up. It however does not seem to favor publishers of sites with low traffic.
It is important for both advertisers and publishers to know what CPA or CPI ads can do for them. Hopefully, this guide can help to gauge which pricing model is worth the money.