The Business Case for Cost-Per-Thousand

ericboscorevised“Data-Driven Thinking” is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is written by Eric Bosco, CEO at ChoiceStream.

In a recent column, Criteo CEO Jean-Baptiste Rudelle opined about the virtues of cost-per-click (CPC). I think he was right about the challenges and how CPC pricing models can address them, but I believe there is a business case to be made for cost-per-thousand (CPM) pricing.

Many advertisers adhere to Rudelle’s school of thought and only operate on a CPC basis, which many ad solutions companies support for that reason. When an advertiser is open to alternatives, however, I recommend CPM with back-end metrics. Based on my experience, CPM can solve the same challenges as CPC while delivering some key advantages.

CPM and CPC can both be computed for any campaign. You can compute eCPM on a CPC campaign or you can compute the cost of a click on a CPM campaign, so it may seem somewhat irrelevant which you choose as the primary metric. However, the pricing model is the primary motivator of the advertiser’s media-buying partner, so the model makes a big difference in their behavior.

CPC campaigns will collect clicks. It won’t matter to the media buyer whether those clicks convert into revenue or come from sites that favor hyperactive clickers. It also won’t matter to the media buyer if the consumer clicks for curiosity or intent to purchase. There is a lot of evidence that suggests there is no correlation between clicks and business success. And CPC campaigns will always and only get you clicks.

On the other hand, CPM campaigns enlist the media buyer as a business partner. The media buyer is paid to buy media and they are free to line up the value of the media with the business goals of the advertiser, whatever those goals may be. Better alignment yields better results.

Rudelle laid out a series of challenges that can be solved by CPC. Here’s how CPM pricing can address each one, plus others.

1. Am I really getting what I am paying for?

Let’s face it, in a profit-driven world, we almost always get exactly what we pay for — sometimes less, but rarely more. If you are paying for clicks through a CPC model you will get clicks and nothing more. You will give up control over where your ad runs, frequency of exposure, and other campaign parameters. You won’t get valuable branding that can convert into later conversions, insights into the best respondents or view-through conversions, which have been shown to deliver 50% or more of campaign responses.

A CPM-priced campaign can have rigorous metrics to ensure that the campaign is delivering value. The advantage is that a CPM campaign can have many metrics that are tracked and optimized, allowing the advertiser to be nimble in measuring success. I frequently find that advertisers shift their emphasis from one metric to another during a campaign. One retailer, for example, began its campaign with a cost-per-action (CPA) goal, but halfway through the campaign shifted to a blended CPA and percent of new customers. A CPC pricing model can’t do this. Many campaigns optimize for clicks, then shift to optimizing for conversions as sufficient data is accumulated. A CPC campaign can’t do that either.

2. What is the right level of capping per user?

Of course, the right answer to this one is, “It depends.” A branding campaign should have a low frequency and a direct-response campaign should have a high frequency. CPM pricing can do both. For a branding campaign, the goal is not to drive direct responses, so it wouldn’t make any sense to measure the campaign and pay for clicks in direct response to the ad. Even for direct response campaigns, a back-end click-through rate (CTR) metric is sufficient to ensure performance and it has the flexibility to switch to CPA as the campaign progresses.

3. What is the value for each impression and how do we measure the ROI of the campaign overall?

The value of each impression is the impact it has on the KPIs of the advertiser. If an impression causes a click that leads to a sale, it is valuable, and CPC buyers capture that value very well. There are many other valuable reactions to an impression that a CPC buyer won’t get paid for and won’t make any effort to capture. If an impression is one of a series of impressions that eventually leads to a click, it is valuable. If an impression contributes to the influence of a consumer who later searches or walks into a store, it is valuable. CPM campaigns can recognize these values and buy impressions that drive them. CPM pricing can open up other advantages as well.

4. What if transparency is important?

Transparency into where and how the campaign is being run is almost always important to an advertiser. Brand safety is one of the key reasons, but advertisers are also interested in gathering marketing intelligence to inform creative development. In CPC campaigns, the burden of performance risk rests with the media buyer, and this causes them to be much less open. CPM campaigns in which the advertiser pays directly for the media give the advertiser more rights to see and control what is going on.

5. What if more than one metric is used to measure performance?

Transparency into more than one metric should be on the mind of all advertisers. The number of clicks is important, but so is the rate at which clickers convert to buyers. Advertisers are also interested in the value of the purchases being driven by the clicks and the eventual lifetime value of the converted customers. And they are interested in the percentage of clickers that are new versus returning customers. CPM campaigns can be measured and optimized by all of these metrics and more.

6. What if quality of clicks is just as important as quality of impressions?

Of course it is. Just as all impressions are not equally valuable, all clicks are not equally valuable. CPM campaigns provide the ability to measure the actual revenue derived from the campaign and the flexibility to optimize that revenue, regardless of whether many clicks or a few clicks are driving it. Avoidance of chasing clicks that don’t really translate into revenue is a key advantage of CPM pricing.

Follow Eric Bosco (@ericbosco), ChoiceStream (@ChoiceStream) and AdExchanger (@adexchanger) on Twitter.

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1 Comment

  1. Eric – I understand what you are saying, but i’m not sure I 100% agree that CPM-based campaigns are better than CPC. I think much of the difference between you and Jean-Baptiste is one of tracking. The same tracking capabilities are available to both CPM and CPC campaigns, so tracking impression value, how clicks convert by source or referral and any other attributes is still possible. And while much of the margin burden falls on the media buyer on a CPC campaign, they should still provide – or at least use themselves – reporting that allows for those types of data to be captured and analyzed.

    Certainly there is value to buying the impression specifically, and certainly clicks are loosely correlated to results at best, but there are many cases in which a CPC price model is beneficial for the advertiser and media buying company.