The definitions of CPM and CPC are simple. CPM is defined as cost-per-thousand impressions. So you could have your ad shown 1,000 times and have zero clicks, yet you still have to pay a specified price that is agreed upon before the ads start showing. CPC is defined as cost-per-click. Meaning, you could have your ad shown 1,000 times and if you have zero clicks on your ad, you pay nothing. The idea behind these 2 types of advertising models is where it gets a little more complex. Mathematically comparing the cost of CPC to CPM is simple. Knowing which produces results that drive sales…that is the hard part.
CPM advertising is effective as a branding tool where you are trying to create awareness for your company, brand or products. This is perfect for new products in order to stoke interest. CPM allows you to create banners and image ads to be shown on targeted websites. Google and Bing allow advertisers to target which websites they want to be included in (or excluded from). CPM ads use competitive bidding with minimums starting at $.25 per 1,000 impressions. Focusing on ad design is critical with CPM to encourage a higher click through rate.
CPC advertising is pure performance based advertising where you only pay when someone clicks through to your website or landing page. Results are very trackable with analytics. CPC text ads are the only option available if you want your ad to appear along with Google or Bing’s search results. CPC ads require a bid of at least US$0.01 per click.
Determining which one is right for your business requires a host of tests to determine which method demands the lowest cost-per-conversion (a click that leads to a purchase or inquiry about a service that you provide). Many CPM advertisers are able to lower advertising costs and increase their sales revenue with well optimized ads.