In this installment in our Mobile UA 101 series, we’ll explore the difference between CPM and CPC payment models.
Mobile is an essential advertising channel, especially for app marketers, but each deployment has a cost. That’s why ad spend efficiency is crucial: Marketers must optimize campaign performance by choosing mobile advertising rates that align with their goals. In 2020, CPM (cost-per-mille) and CPC (cost-per-click) pricing models remain popular, though models like CPI (cost-per-install) and CPA (cost-per-action) are also crucial for app marketers. Each model is well-suited to particular marketing goals — here’s our guide to CPM and CPC in the world of mobile advertising.
Need a primer on mobile game and app marketing? Check out Mobile User Acquisition 101: A Beginner's Guide.
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What is CPM?
CPM stands for cost-per-mille, “mille” referring to the Latin word for thousand. In marketing, CPM is the cost advertisers pay for every thousand impressions during a campaign. The model is commonly applied to various advertising formats, including web ads, television, and even radio. Now that digital technologies let marketers access more impression data, CPM has become a far more precise performance indicator.
Today, CPM advertising has an essential role in mobile app ecosystems. An impression is typically counted when an advertisement displays at least one pixel for one second, whether it’s a video, interactive experience, or full-screen interstitial. For this reason, a single well-optimized ad can generate brand awareness for thousands — perhaps even millions, depending on the campaign’s scope.
How is CPM calculated?
Cost-per-mille is calculated by dividing the total cost of an ad campaign by the overall impressions, then multiplying the result by 1000. In the programmatic ecosystem, advertisers and demand-side platforms (DSPs) bid in real-time for ad inventory — essentially bidding on individual impressions. Depending on the campaign parameters, each bid will result in a different payout. For example, an advertiser that bids an average of $0.0002 per impression to show an interstitial ad would achieve a $0.20 CPM for the campaign.
What is CPC?
CPC stands for cost-per-click, one of the most common online advertising models. Originally designed for desktop web pages, CPC campaigns track the number of clicks and interactions with displayed advertisements. As users transitioned to smartphones and mobile apps, CPC ad models came with them. On mobile, the parameters of CPC ads quickly expanded beyond single clicks to account for each video, interstitial, or playable interaction on the display screen.
How is CPC calculated?
Sometimes advertisers agree to a flat cost-per-click upfront, but programmatic ad buying has become more common in recent years. As in the CPM example, the programmatic model introduces a layer of complexity. In the RTB ecosystem, advertisers choose their maximum bids and compete in an auction for the ad inventory. In these cases, the ad that wins the bid (and thus the click) will be one cent higher than the second-place maximum bid. The cost-per-click is then calculated by dividing the campaign spend by the total number of clicks.
What’s the difference between CPM and CPC?
CPM and CPC are both useful metrics, but they serve distinct goals. CPM campaigns are ideal for brand building and visibility. If you represent a new brand with an untested app, CPM focuses on putting your campaign on as many screens as possible. Once your awareness increases to the point that users are familiar with you, its time to transition to action-based campaigns a conversion-centric campaign.
What’s more, CPM campaigns can be invaluable for understanding your audience. If your ad is playing on apps frequented by millennial parents, you can tailor services, promotions, and even messaging accordingly. Alternatively, if a high value demographic is interested in your app, CPM campaigns let you test interest beforehand.
CPC, on the other hand, emphasizes conversions and down-funnel events. CPC measures the number of users willing to learn more about your app or install it. While marketers analyze performance from this perspective, they can better target focus on the customers and experiences that will generate revenue.
Choosing between CPM and CPC marketing campaigns
CPM and CPC are equally important as metrics, but marketers can only implement one model in a given campaign. For that reason, it's important to weigh the benefits and drawbacks of each KPI and choose the one that fits your campaign.
- Inexpensive: CPM rates are generally the least inexpensive.
- Brand building: CPM campaigns are well-suited for campaigns intended to increase brand awareness.
- No guarantee of conversion: Marketers must be aware that CPM campaigns have little expectation of revenue from user conversions. Treat them as the first step of reaching and acquiring new customers.
- Pay-per-click: Advertisers only pay for each confirmed interaction with your ads.
- User engagement: CPC campaigns are well-suited for ads that will move users along the marketing funnel.
- Next step towards conversion: Clicks are still not conversions — marketers will need to carefully manage the user experience to ensure they become full-fledged customers after clicking on an ad.
It’s worth remembering while CPM and CPC campaigns are useful, they are not the only available pricing models. One popular metric, cost-per-install (CPI), is used to measure ad spend in relation to app installations. As an alternative, cost-per-action (CPA) tracks designated actions beyond the advertisement itself, such as playing the advertised game or signing up for a newsletter. What’s important to note about CPM and CPC is their value as top-of-funnel marketing metrics, while CPI and CPA are more valuable as down-funnel metrics.
What do CPM and CPC mean for mobile publishers?
For app publishers who monetize their apps using mobile ads, CPM and CPC are important in their relation to effective cost-per-mille (eCPM). This metric is calculated by multiplying the CPC and CTR (click-through-rate), and multiplying the result by 1000:
eCPM = (CPC x CTR) x 1000
eCPM tracks ad revenue for every thousand impressions and is used to calculate payouts to publishers — making it essential for their bottom line!
Making the most of CPM and CPC
CPM and CPC campaigns are incredibly useful, but marketers must take extra steps to ensure their success. At MOLOCO, we offer fully-managed programmatic campaigns that ensure every ad is optimized for performance. If you’re ready to take the next step with your mobile ads, get in touch today.