CPC vs. CPM: Which delivers better ROI?
By MediaBrains

In this corner of the ring is cost-per-thousand, the oldest advertising pricing model. And in the far corner, the opponent: cost-per-click. They’re slinging it out in the battle of the advertising pricing models. Who’s the champ?

The battle of CPC versus CPM has come to the forefront now that online advertising is reaching maturity.

Which is better: CPC or CPM? It’s the question that marketers have been asking since the beginning of the online advertising age.

Mathematically, it’s easy to compare CPC to CPM. Here’s an example of how to do it:

(CPC means Cost per Click ads, while CPM means Cost-Per-Thousand Impressions of the ad.)

Assume that you bid $1.00/click for your CPC ad and commit to a $2,500 budget. You are guaranteed 2,500 clicks. Now assume that you agree to pay a $15 /cpm for the same ad and commit to the same $2,500 budget. You are guaranteed that your ad will be seen 166,667 times. To get the same number of clicks, 1.49% of the people who see the ad would have to click on it (that’s click through rate, or CTR).

Mathematically comparing the cost of CPC to CPM is simple. Knowing which produces results that drive sales…that is the hard part. Many pontificate, but few reach full knowledge and understanding.

Calling for proof, marketers want studies to gauge the effectiveness of online advertising. But what exactly are they measuring the effectiveness of?

Consider these questions:

• How does your B2B firm sell? And what do you sell? A $2,500 widget or a $25,000 CRM system?

• Is it likely that your product will be purchased online (think shopping cart functionality)…or is yours a longer sales process (think months)?

• Do you have a direct sales force? What do they do with leads once they have them?

• What is the process for tracking those leads once they are delivered to a rep?

As you can see, the definition of “effectiveness” changes based on your company’s specific goals

In determining which pricing model is best, CPC proponents will say that you can’t always trust impression counts in CPM. But shouldn’t they be just as concerned about click fraud in CPC?

Then comes the question of which leads are more qualified. Cost-per-click might get more eyeballs, but cost-per-thousand might guarantee those eyeballs are pre-qualified.

So who wins the big fight? CPC or CPM? Looks like this one’s going into extra rounds.

---Source: Media Brains Business Blog October 2008 (www.mediabrains.com).