What is CPA, CPC, CPM? Most Common Pricing Models in Paid Ads

There are several different ways to price online ads. The pricing model depends on the campaign goals, the platform hosting the ad and the type of ad itself. Not all digital advertising pricing models are created equally. Some models are more advertiser-friendly than others. These are the three most common pricing models used in the online performance advertising model. Any of the following pricing models might be right for your digital advertising campaign.

1. CPA – Cost Per Acquisition / Action / Conversion:

CPA is a pricing model where companies are charged by advertising platform only when leads, sale or conversion generated.

CPA can be found out by dividing the cost to the advertiser with the number of actions received on the ad. Also called as CPL (Cost Per Lead).

CPA Formula

CPA = Total Ad Spend / Number of Conversions

Example: Suppose, a certain ad campaign was viewed 5000 times, received 200 clicks and there was a total of 20 positive conversions. The total cost that the advertiser decides to pay is $200, and then CPA can be calculated as:

CPA = 200/20 = $10

2. CPC – Cost Per Click:

CPC is a pricing model where companies are charged by advertising platform for every click people make on ad.

CPC is calculated by dividing the cost to the advertiser by the number of clicks received on the ad.

CPC Formula

CPC= Total Ad Spend / Number of Clicks

Example: You receive 100 clicks on the ad. The total cost for the advertiser is $300 and then CPC can be calculated as:

CPC = 300/100 = $3

3. CPM – Cost Per Mille/Cost Per Thousand:

CPM is a pricing model where companies are charged according to number of time their ads appears per 1000 impressions.

CPM is calculated by dividing the total cost to the advertiser by the number of impressions received on the ad and multiplying the result with 1000.

CPM Formula

CPM= (Total Ad Spend / No. of Impressions) x 1000

Example: Suppose an advertiser agrees to pay $50 for certain ad campaigns and the ad receives 50000 impressions. Then the cost per 1000 impression will be:

CPM = (50/50000) x 1000 = $1

CTR – Click Trough Rate:

This number is the percentage of people who view your ad (impressions) and then actually go on to click the ad (clicks).

CTR Formula

CTR = (Total Clicks on Ad / Total Impressions) X 100

Example: Suppose ad receives 1000 impressions and gets 120 clicks. Then the CTR will be:

­CTR = (120/1000) X 100 = 12%

Solve Below Examples:

Example 1:

Ad Spend = Rs. 26408

Total Leads = 115

Calculate CPA?

Example 2:

Ad Spend = Rs. 27158

Total Clicks = 2180

Calculate CPC?

Example 3:

Ad Spend = Rs. 2710

Total Impressions: 368000

Total Clicks = 1927

Calculate CPM?

Example 4:

Ad Spend = Rs. 20900

Total Impressions: 28300

CTR = 3.75%

Calculate CPC?

Example 5:

Ad Spend = Rs. 3680

CPC = Rs. 22

CTR = 18.30%

Calculate Clicks?

Total ad impressions?