Thursday, May 29, 2008

CPM, CPC, CPA – Which are the Real Money Makers?

There are three basic types of online ad, in terms of revenue:

CPM – Cost Per Thousand Impressions
You serve 10,000 impressions of an ad at a rate of $5 CPM, and you’ve made $50.

CPC – Cost Per Click
You serve 10,000 impressions of an ad at a rate of $5 CPC, and its clicked on five times, and you’ve made $25.

CPA – Cost Per Acquisition
You serve 10,000 impressions of an ad at a rate of $5 CPA, and its clicked on five times, and one person signs up for an account on the advertiser’s landing page. You’ve made $5.

Notice the progression. The CPM ad required just one step – ad delivery – before you made money. The CPC ad required two steps – ad delivery, plus customer click – before you made money. The CPA was worst of all – not only did you have to deliver the ad, and not only did the customer have to click on it, but they had to complete an action after all that before you’d see a single red-cent.

Now, this is where a lot of folks will say I’m crazy. There are oodles – OODLES I say – of web entrepreneurs out there who claim to make tens of thousands of dollars a month from affiliate marketing (essentially, CPA ads). They say that its all about testing each opportunity and then going full-speed with those that work best for your niche. They say that once you’ve found those 2 or 3 CPA campaigns that convert well for your sites, that the money just flows in.

That may be true for them, but its never – NEVER – been true for me. Not once in thirteen years of online advertising have I ever made significant money from a CPA ad campaign. Unless you’re in a very specific niche that just happens to be a haven for CPA campaigns (ring tones, for example), CPA’s are a pipe dream. I don’t bother with them. Ever.

CPC’s are a bit of a grey area for me. For years I avoided CPC ads – that is, until Google came around and completely turned the CPC business on its head through relevant, contextual advertising. The only CPC ads I run are Google Adsense, because they have an enormous reach and because their ads are always contextually relevant to my audience. Because of that, my visitors click the ads, and I make money. Not boatloads, by any means, but on certain sites and in certain niches, Google Adsense adds a significant percentage to my daily numbers.

Needless to say, any CPC campaigns that are not contextually targeted – ignore them. No one will click on them, and you’ll serve 5 million impressions and pull in about twelve bucks for your troubles. Not worth it.

CPM ads. These are my bread and butter. I love CPMs. On many of my sites I will run CPMs and ONLY CPMs. They’re constant, they’re steady, and you always know what you’re going to get. This is the workhorse of my little mini-economy. I’ll generally run anything that’s over $0.50 CPM on my sites, though I regularly have campaigns that pay upwards of $7.50 or more CPM. The overall numbers seem small compared to the mini-fortunes that some CPC/CPA networks will “promise” you, but unlike those pie-in-the-sky offers, CPMs pay out every time.

If you’re new to online advertising and not sure what type is right for you, I’d say, stick with CPMs for the most part, and do some small-scale experimentation with Google Adsense. All other CPC/CPA campaigns are essentially – in my point of view – a waste of time. Unless you’re in a really particular niche that is known for CPAs, its just not worth the effort.

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