Choosing between PPC vs CPM Banners Ads

PPC and CPM, no these aren’t colleges about to face each other on the field. PPC (pay per click) and CPM (cost per thousand) are two methods for paying for banner ads. Each one has it’s place in an effective campaign, in fact I’d go so far as to say that nearly any online campaign should utilize them both. In this post we’ll explore the reason’s why you should consider them both for your online marketing plan.

Introducing the contenders

PPC, or pay-per-click, means that each time a person clicks on your ad you will pay a predetermined amount. This model makes up the majority of Google Adwords ads. The nice thing about it is you are guaranteed a set number of traffic for a set price. In other words if you say you want to pay one dollar per click and you set a budget of 1000 clicks, you will get no more than 1,000 clicks and will pay no more than $1,000 dollars. Of course that can also be viewed as a weakness. You will not get more than 1,000 clicks because once your budget is spent, your ad disappears until the next cycle.

CPM, or cost per thousand, is based on impressions, or views, of the banner. Generally the pricing is based on increments of 1,000 impressions. You are guaranteed that your ad will be displayed on the web page a visitor sees. The benefits of this model are that a banner will be seen a set number of times, the drawback is that you can’t absolutely guarantee an exact number of hits to your website.

Common Misunderstanding

Over the years I’ve encountered many people, even among professional online marketing people, that write off CPM completely. They say that since PPC has a guaranteed flow of traffic that there is no reason to use CPM. Obviously, I disagree with that logic. To prove that CPM should be included in almost every campaign I’ll show the math of the two methods. Feel free to break out your calculators at this point, don’t worry, the article will automatically wait for your return.

The most important common feature of both methods is that their purpose is to drive traffic to your site. Click Through Rate (CTR) then becomes the most important tracking number for us to look at. For the sake of this example, we’ll also assume that basic research has been conducted correctly and that the ads are being placed on websites which are frequented by your target audience. Across all industries the average CTR for banner ads currently sits at 0.9%, for easy math we’ll just round that up to 1%. The average cost per click in PPC is $0.89 and the average CPM is $0.24. We’ll set our CTR goal at 1,000 for the example.

We’ll start with PPC. The math here is very simple, for 1,000 clicks you’ll pay $890. Based on the industry average of a 1% CTR you know that if you have 1,000 clicks, then your ad displayed approximately 100,000 times.

Next comes CPM. In order to hit your target of 1,000 clicks you’ll buy 100,000 views at the average price of $0.24 per thousand. If you multiply 100,000 by $0.24 per thousand you find that you will pay $24 to get the same number of views and clicks as a PPC campaign. (Thanks to Karan for catching my math mistake)

Here’s a handy table to make it easier to see the comparison:

Number of Views 100,000 (approximate) 100,000 (exact)
Number of Clicks 1,000 (exact) 1,000 (approximate)
Total Cost $890 $24

Knock Out Punch?

Suddenly CPM doesn’t look so bad, right? So, why don’t I tell you to stop using CPC altogether? There are two main reasons, first, not all industries perform as well as others as far as CTR is concerned. Second, some sites only allow for small text ads to display which historically have a much lower CTR than banners that allow images or rich media (animation, sound, etc.)

Boil it down

After everything is said and done, you should choose the ratio of your PPC and CPM after researching your industry’s performance and costs in each. Research the sites on which the ads will run to make sure they are visited by your target audience. If you find yourself getting stuck on the research part or in deciding what ratio you should be using get in touch with me for a consulting session.

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