Advertising Pricing Methods: CPM vs CPC vs CPA | Interview with Larry Kim
Advertising is very important to companies.
No matter how good your product is, if people are not aware of it , you will fail to sell it. In fact, the US advertising spending has reached $187 billion in late June 2015, digital ads accounting for 28% of this amount.
Digital ads are the fastest growing of all ad categories. Thus, it’s safe to say that digital advertising could just be the future for businesses, especially with its continuous growth over the last few years .
Online advertising can be categorized into 5 main categories: Display ads , search/text ads, email ads, mobile ads, and social media ads.
The online advertising pricing methods that are most commonly used are CPM, CPA and CPC.
To get a better insight into these pricing methods, Cloudswave invited Larry Kim, founder of WordStream, to get more insights from an online advertising expert’s point-of-view.
WordStream provides a simple software solution to help manage all your advertising campaigns from various platforms into one dashboard. WordStream’s platform is cloud-based and continuously adapts to industry changes. It helps companies get more traffic, higher-quality leads and greater profits.
Advertising Pricing Methods: CPM vs CPC vs CPA
What are the advantages and disadvantages of each one of the pricing methods; CPM, CPC, and CPA?
|Pricing Method||Advantages (for Advertiser)||Disadvantages (for Advertiser)|
|CPM (cost per impression)||Fixed Pricing – Predictable Spend||Ad blockers and lower ad positioning might mean that you’re paying for ads that might not be seen.|
|CPC||Paying for clicks is better than paying for impressions.||The clicks may or may not have desirable customer demographics.|
|CPA||You only pay for performance.||Not much downside here!|
Would any of these advertising options work better or worse given a particular industry? In other words, can you choose the right pricing method that is best for you based on your industry?
Generally, the pricing terms are set by the ad platform. For example, Google AdWords is a predominantly CPC-based ad platform, whereas Facebook is mostly a CPM-based ad platform and Twitter is exclusively CPA-based. You should choose where to place your ads based on which ad network makes the most sense for your business (where do your customers hangout?) as opposed to the pricing model of the ad network.
How would you rate the importance of outsourcing online ads management for small businesses and startups? Can it be manageable within a small team or is it mandatory to have a third party take care of it?
There aren’t a lot of options. If you’re a small business spending a small budget, say $500 to $2500 per month, you’re going to have a lot of difficulty even finding an agency to take on an account of that size. Your options are then to have someone do it in-house (if you have someone with that expertise), or use an automated PPC software solution like WordStream to make sure your account is being properly optimized.
Can you provide us with examples of emotion triggers that would increase conversion rates?
Yes, and this is HUGE! Boring ads suck and don’t convert. Anger, disgust, affirmation and fear are all wildly effective emotional triggers, and you can see them in action in this post on the WordStream blog. It’s super important that you master this, because the higher engagement rates you generate with emotionally compelling ads are going to drive your Quality Score up, reducing your CPCs. That’s how much boring ads suck — Google actually makes you pay more for them. It’s like a tax for being lazy with your ads.
What would you say are top 5 most efficient PPC CRO hacks?
There are 3 real standouts right now: using new and different ad formats, using remarketing for CRO, and finding AdWords Jackpots to use to your advantage. Using these three hacks can exponentially improve your AdWords performance, driving a ton more clicks, but also bringing more qualified leads, increasing engagement, and reducing costs. If you want to seriously improve your conversion, you have to throw out all the old conventional wisdom everyone else is following and use these new tactics, instead.
Can you tell us how WordStream started? What makes you unique when compared to your competitors?
Our key differentiator is that we work with smaller companies with smaller budgets, to improve the performance of their PPC and social advertising campaigns. We offer a free AdWords Grader anyone can use to evaluate their account in under a minute, and recently launched our WordStream PPC University, where anyone can learn PPC for free, even from a mobile device in their spare time.
Helping small business has been my priority from day one, because WordStream was created out of my own desire to make PPC account management easier in my consulting business. It began as a tool I created to automate some processes that were time consuming and seemed unnecessarily difficult. We’ve now grown into the top Google Partner and recently won two awesome awards from Google, in recognition of our contributions as innovators and leaders in PPC.
Can you tell us about the best growth hacking strategy you have personally used and why it’s the best according to you?
Hands down, the best growth hacking strategies I’ve personally employed have been massive PR stunts using newsjacking but also getting ahead of the news and creating it, then using social and PPC advertising to make our stories go viral. One example was the Facebook Ads vs. Google Display Network infographic we released just 3 days ahead of the Facebook IPO, which ended up earning us thousands of media mentions, an appearance on Fox Business, interviews on national radio, and of course, all of the valuable links that go along with that media love.
What are your plans for WordStream’s growth? Any future developments in the works for 2016?
For sure, we’re still growing rapidly — the evolution of the paid search landscape demands it! In October, we brought social advertising support to WordStream, enabling advertisers to combine the power of paid social with highly optimized paid search campaigns. Around half of WordStream customers are either advertising on Facebook already or plan to begin shortly, so we’re making it easier for businesses to realize its full power. We’ll continue innovating in paid search and paid social in 2016, to help businesses of all sizes tap into the massive potential for targeting high-intent prospects across Google and Facebook.
About Larry Kim
Larry Kim is the founder of WordStream, a leading search marketing software and services provider based in Boston, managing approximately a half-Billion in annual ad spend across over thousands of customers. He regularly shares his advice and insight with over a million visitors a month at his WordStream Blog and is a top contributor for leading industry publications including Inc.com, Search Engine Land, Search Engine Watch and Social Media Today.
Larry is often called on to keynote or speak at industry events including INBOUND, SMX, ClickZ/SES, Pubcon, MediaPost Search Insider Summit, PPC Hero Conference, SEMPDX, SearchLove and many others. He was recently named “Most Influential PPC Expert” for 2015, 2014 and 2013 by PPC Hero Blog and marketing agency 3Q Digital and won ClickZ’s Digital Marketing Hall of Fame and Small Business Influencer awards in 2013.