Online advertising pricing models

The choice of online advertising pricing models is crucial for any budgeting strategy. The modern digital advertising offers various pricing options. There exist cost-per-click, cost-per-action, cost-per-mille, and other models.

Online ad pricing development

There used to exist 2 basic models – CPC & CPM. The latest was created at the very beginning of online advertising history becoming popular in 1995-1996. In 2002, the CPC model was adopted by Google making it a standard. With the technological development and creation of more media channels, other varieties of models started to appear. Thus, the following pricing options developed:

  • cost-per-engagement (applied in social media)
  • cost-per-view (applied for video adverts)
  • cost-per-fan (used in social media)
  • cost-per-app installation (used for mobiles).

Until recent time, conversion-based models were extremely popular. Today performance-based advertising is in the center of interest. Thus, the following types are widespread:

  • cost-per-action
  • cost-per-lead.

The publishers offer various online advertising pricing options, each of which has a certain mechanism.

Models of digital advertising cost formation

Let’s consider common models:

  • CPM: it is applied for video adverts. It used to be popular for display adverts as well. In this case, a flat rate is set for every 1000 views, which an advert gets. The advertisers are paid regardless of the fact whether the advert is clicked or not. One of the prominent examples of this option is YouTube. The cost of digital advertising varies depending on the content, length, possibility of skipping, and other features of an ad.
  • CPC: the advertisers are paid when the ad is clicked. The keywords for such ads are expensive; however, the risks to pay for nothing are lower compared to the previous model. CPC is used for display adverts and posts in sponsored social media.
  • CPL: in a cost-per-lead model, the advertiser is paid for every qualified lead. To ensure the lead, the users fill in a special form (with contact data). The cost varies depending on the complexity of forms.
  • CPA: the advertiser is paid when a certain action is fulfilled. The model is close to cost-per-order and cost-per-conversion.

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