Comparing CTR, CPV, CPA, CPC & CPM: A Guide to Ad Metrics
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Pathlabs Marketing |
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March 27, 2024 |
Those who execute digital media campaigns should be familiar with go-to metrics like CPM, CPC, CPA, CPV, and CTR. However, these metrics have a lot to them, and only those who know how to use them are the most competitive.
In this blog, we share a glimpse of this digital media expert knowledge, reviewing each metric, their funnel fit, and how to interpret them.
What Is CPC?
Cost per click (CPC) measures the amount an advertiser pays for every click their ad receives.
Cost per click can be confusing because it serves two purposes: a pricing model and an ad metric.
CPC Pricing Model
First, CPC is a pricing model some platforms use, allowing advertisers to pay only when users click on their ads. So, even if their ad serves hundreds of impressions, the advertiser only pays when a user clicks.
Teams primarily pay for their advertising using the CPC model, also known as the pay-per-click model (PPC), when executing paid search ad campaigns, like with Google Ads. Some other channels, besides paid search, allow teams to pay on a CPC basis.
The way CPC pricing actually works can depend. The definition above suggests a more direct deal approach, where advertisers pay a fixed CPC rate when users click.
Nowadays, with platforms like Google Ads, we more often see the model where teams set a CPC bidding range and their budget in the ad-buying platform. This range includes the minimum and maximum amount the team is willing to pay for a single click.
They can even have the platform automatically set a bidding range based on the budget, using its ML and AI capabilities.
As ads serve, the team ultimately pays the accumulation of the winning bid prices they paid to serve their click-driving ads.
CPC Ad Metric and KPI
CPC’s other purpose is as a metric teams can calculate and assess to interpret campaign performance.
Even if the campaign in assessment isn’t paid search, teams can calculate CPC.
They just need the number of clicks they obtained in the campaign and the amount they spent—most platforms calculate this for them.
CPC Formula
Funnel Fit
Teams often use CPC as a KPI when executing campaigns targeting consideration to mid-conversion sections of the sales funnel.
Things to Keep in Mind
The general logic when assessing CPC as a metric is that a low CPC means you’re paying very little for a lot of click traffic. In other words, your ad is effective at getting people to click.
High CPC means you are spending a lot for each click. This is not always bad, especially if you are willing to pay top dollar for clicks from an audience you have narrowed in on.
Regardless of low or high CPC, teams should also monitor traffic quality alongside this metric.
What Is CPM?
Cost per mille (CPM) measures the average amount the advertiser pays for every thousand impressions their ad serves (mille is “thousand” in Latin).
Like CPC, CPM serves as a pricing model and an ad metric.
CPM Pricing Model
Under the CPM pricing model of digital and programmatic advertising, the advertiser pays per impression, but with a slight caveat.
Because single impressions cost cents or fractions of cents, it's much easier to discuss impression cost in terms of a mille (the M in CPM) or a group of one thousand.
To find CPM, divide the total number of impressions by 1000, then divide that into the total amount spent. So, theoretically, if the advertiser has their ad served 100,000 times and pays $500, their CPM shakes out at $5 for every thousand impressions.
When running digital ads using a DSP, teams can set a maximum and minimum CPM range. The DSP will then bid on and serve ads to different users, winning each bid at varying prices within this target range.
CPM Ad Metric and KPI
CPM is a metric that teams can almost always calculate, no matter the channel or pricing model. They just need the number of impressions their campaign served and how much they paid for them.
CPM Formula
Funnel Fit
Teams like to elect CPM as a KPI to track when executing campaigns at the top of the funnel, especially those that aim to generate awareness and get a message out in front of the masses.
Things to Keep in Mind
Teams should use CPM as a jumping-off point to understanding initial campaign performance, as it can immediately signal whether you are paying way too much or too little to get impressions.
For a display campaign on the open exchange, paying about $40 for every 1,000 impressions can be extreme. On the other hand, if you are executing a CTV campaign, this may be a stellar rate for very premium inventory.
In fact, CPM can serve as a proxy for inventory quality. Each channel and tier of inventory tends to offer different ranges of CPM prices. This means that when you execute the campaign, you can somewhat anticipate where your CPM will fall, such as in the cents to high dollar range.
Remember this, as you might think you scored out by driving exponential impressions at a really low CPM price. However, for these low CPMs, the ad-buying platform could be putting the ads in front of whoever it can, with these users not residing in the target audience.
This is not to say you need to prospect buying inventory at the highest prices, but remember: you get what you pay for.
What Is CPA?
Cost per acquisition or cost per action (CPA) measures the price the advertiser pays for every action they receive.
An “action” or “conversion” may be a purchase, form fill, demo request, sales intro meeting inquiry, or any user action directly addressing the business objective.
CPA is a step farther down the funnel from CPC.
CPA Pricing Model
When used as a pricing model in some platforms, the advertiser only pays when the campaign spurs someone to take a desired action.
If a user sees and clicks an ad but doesn’t convert, the advertiser doesn’t pay.
Teams can sometimes tell the ad-buying platform to optimize towards actions and conversions without even providing a CPA range. The platform will then try to drive as many actions as possible based on the budget.
CPA Ad Metric and KPI
CPA is a good metric to calculate, as it puts into perspective how much you are spending per user action taken.
Teams often use CPA to justify which channels to invest in. To do so, they need the following information:
How much revenue do they want to make from this campaign?
What is the historical revenue amount each user action has yielded or the prospect revenue?
What historical CPA has the team achieved for this channel, or what does the channel prospect as an average CPA?
With these figures in hand, the team can calculate the required volume of actions and conversions needed to meet revenue goals, comparing this to whether the CPA for the prospective channel is low enough to leave a margin between the revenue generated from user action and the amount it took to create the action.
The end goal is to find your sweet spot CPA, where you pay the least amount of money to drive user action.
CPA Formula
Funnel Fit
Teams executing campaigns from mid-to-bottom of the funnel often select CPA as a core KPI. Because this metric is ‘so far down the funnel,’ CPA is a proxy for the effectiveness of your ad, website copy, forms, landing pages, etc.
If lots of users take action, the touchpoints are effective. If users fail to take action, this is where teams begin looking for bottlenecks in the funnel.
Things to Keep in Mind
Generally, if you achieve a low CPA, you know you’ve nailed your targeting, messaging, and strategy for driving conversions.
With a high CPA, you are paying more per action. Like CPC, this is not always bad: you might be willing to increase the price per action on target users.
However, interpreting CPA has its flaws. We know that at the end of the day, we can’t always narrow down a viable and single amount per action. Some users quickly move down the funnel, while others need more nurturement.
What Is CPV?
Click-per-view (CPV) functions precisely like CPC, but in this case, the advertiser pays only when users view a piece of content.
This mainly applies to online video ads. Unlike an impression, which simply loads, a ‘view’ may count as the video ad simply loading on the page or once it displays for a certain amount of time.
CPV Formula
Funnel Fit
CPV is a KPI for more top-to-mid funnel campaigns. Like CPM, teams should assess CPV along with other metrics.
What Is CTR?
Click-through rate measures the percentage of users who clicked on an ad after seeing it; in short, comparing the number of impressions to clicks.
CTR is not a cost-per-metric or pricing model, albeit an important KPI. It removes the cost and shows how many people click when your ad serves to them.
A high CTR means a significant number of the impressions your ad serves are clicked on; a low click-through rate means your ad is serving, and few are clicking.
CTR Formula
Funnel Fit
CTR tends to be a KPI bound to the top-middle parts of the sales funnel. At Pathlabs, we frequently examine this metric and track towards it.
Things to Keep in Mind:
Now that we have hyped up CTR let’s remember its limits. As is the case with reviewing clicks in general, a user clicking on an ad promises no subsequent engagement.
The weight placed on this metric will depend. For campaigns that aim to drive traffic to a webpage, CTR could be a prime metric to set as a KPI.
While for those looking for actions and conversions, they may need to look at additional KPIs down the line.
Comparing and Contrasting Ad Metrics
CPC vs CPM
These are two popular metrics that cause common confusion. They both refer to pricing models used to pay for ads and simple calculations teams can use for campaign assessment.
CTR vs CPC
The click-through rate (CTR) indicates how many clicks were obtained from the served impressions. Cost per click (CPC) breaks down how much the advertiser pays for these clicks.
CPM vs CPV
Like impressions, when we look at views, we only understand how much our ad is loading and user engagement at the surface level. Review these metrics alongside other, more telling KPIs.
Don’t forget how reach and frequency tie into these two metrics as well. Yeah, your ad served X impressions or views at Y price, but how many unique users actually had exposure to the ad, and how often did they see the ad within a given period?
CPC vs CPA vs CPM
These are the three main metrics and pricing models inherent in our advertising industry. CPM and CPC are by far the most common, with CPA growing in popularity.
The interesting case, as we can see from our previous analysis, is these three concepts are continuously evolving, with many platforms, especially in the paid social realm, finding new ways to let advertisers pay for ad inventory and track their campaigns.
Aligning Advertising Metrics with Your Campaign Goals and Objectives
Below are the advertising metrics teams commonly reference based on the corresponding objective of their campaign and funnel alignment. These aren’t set in stone, but good to keep in mind.
We suggest honing in on a select few KPIs for your campaigns that indicate performance for the campaign’s objective. If you just want exposure and demand, focus on one to two top-funnel KPIs.
If you want to drive leads and action, narrow down to CPA and CTR. If you need more insight, slowly expand your focus and pull in the additional metrics mentioned above.
In Conclusion…
The exploration of CPM, CPC, CPA, CPV, and CTR reveals their important role in crafting and evaluating digital media strategies. These metrics guide advertisers in optimizing ad spend and gauging campaign effectiveness, underscoring the importance of understanding their nuances for competitive advantage.
By aligning these metrics with campaign objectives and funnel positions, advertisers can refine their approach to maximize outcomes. Ultimately, mastery of these metrics is paramount for anyone looking to navigate the complexities of digital advertising efficiently and effectively.
