Cost per click (CPC) is an online advertising revenue model that websites use to charge advertisers based on the number of times visitors click on an ad. The cost-per-click model is also known as pay-per-click (PPC).
Cost per thousand (CPM), also called cost per mille, is a marketing term that represents the price of 1,000 advertisement impressions on one web page. If a website publisher charges $2.50 CPM, that means an advertiser must pay $2.50 for every 1,000 impressions of its ad.
CPC & CPM are the two most common revenue models for online advertising. With CPM advertisers are charged based on how often their ad is shown to users. With CPC, advertisers pay for actual visits to their site.
Once your online advertising campaign is up and running, you can calculate CPM from CPC and vice-versa via another metric called CTR (click-through rate). CTR simply means "how often do people click on my ads".
Which of the two metrics is, depends on your use case. CPC is more closely tied to the value that the traffic brings. But CPM has its advantages too - it's more predictable for the publisher. It's possible that visits don't interest you much at all - you may treat display advertising as a way to increase brand awareness.
As previously mentioned, CPC is cost per click and the formula is extremely simple:
CPC = total_cost / number_of_clicks. You may also derive it from CPM and CTR:
CPC = (CPM / 1,000) / (CTR / 100) = 0.1 * CPM / CTR.
The reality is often less straightforward as the one mentioned above. Nowadays, advertisers often compete over the ad placement in a real-time bidding auction. Where special algorithms take multiple factors like the CPC bid of each ad, the ad’s performance so far, and what they know about the target audience into account and try to predict actual revenue for every impression.
The formula for Click Through Rate is also a simple:
CTR = 0.01 * number_of_clicks / number_of_impressions. An impression can also be expressed as a view or otherwise an opportunity for a click. Since the number is expressed as a percentage, it is divided by 100.
If you are looking into the Return on Investment (ROI) from your online marketing campaigns, from impressions, through clicks/visits, leads to actual sales, see our ROI calculator templates.
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