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4 Metrics That Measure The Success Of Online Advertising

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What is Online Advertising?

Online advertising has become one of the most important aspects of any online marketing campaign. It’s a great way to have more traffic to your site and increase business. However, it can be a serious challenge if you are not careful. First you have to decide which channels or websites you are going to advertise on. Then you have to decide which payment method or metrics will suits your business need. There are very precise metrics that measure the success of online advertising, in terms of ROI and cost optimization.facebook-advertising-and-google-adwords-in-sri-lanka

Here is what you need to know:

1. CPM (Cost Per Mille/Thousand):

CPM stands for Cost-Per-Mille (Mille is “thousand” in Roman). This is one of the basic methods used in Internet Advertising. CPM is cost per thousand of impressions, or how much it costs to have an ad published a thousand times on the Internet, and seen by users.

cpmCPM would be preferred when companies just like to enforce their brand and be seen across many websites, without any need for the visitor to click on their banners. This is effective and affordable branding strategy. The impressions made mean that many visitors saw your ad. It is definitely a useful metric to utilize for getting your name and brand in as many eyeballs as possible.

CPM = what you pay to have your ad appear a thousand times

An example of CPM calculation:

  • CPM units = (Impressions/1000)
  • Total price = CPM unit(s)* CPM rate

For example, if an advertiser wants to display 200,000 impressions at $ 50 CPM (cost per thousand) rate, then the total price for the CPM advertising for the CPM advertiser will be:

CPM units = 200,000/1,000 = 200 units

Therefore, total price = 200*50 = $10000

2. CPC (Cost Per Click):

CPC stands for Cost-Per-Click, and is a performance-based metric. This means you need to pay only when (and if) a user clicks on your ad, no matter how many impressions it serve trying to get the click.

CPC advertisements are not all the same in terms of cost and reach and some will cost more than others. adsense-cpcMuch of this will depend on the maximum bid and quality score of a keyword. A keyword is used for a search; its rate is assessed according to its success.

CPC is a performance based metrics and you will have to pay only when visitor clicks on your ad but it is also mean that you are getting impressions that cost you nothing.

CPC = what you pay to get a click on your ad

An example of CPC calculation:

For example, if CPC is $2 and ads got 1000 clicks, then the total price for the CPC advertising will be:

Total Cost = CPC*Number of Clicks = $2*1000 = $2000

3. CPA (Cost Per Action):

Cost Per Action, or sometimes Cost Per Acquisition/Cost Per Lead/Cost Per Sale is the price that is paid every time someone engages in a “conversion.” A conversion is an action that was considered useful by a user on your website, such as Registration, subscribing to a newsletter, Signing up for a free trial or buying a product . These conversions must be defined in the beginning of an ad campaign.


CPA = what you pay for an action on ad

An example of CPA calculation:

CPA = Total cost/no of conversions

If total cost invested on an ad banner is $5000 and total number of conversions received are 250 then

CPA = 5000/250 = $20

With this type of advertising you pay the publisher an agreed-upon fee for each specified type of action. For  example Cost Per Lead can be a set amount, while Cost Per Sale can be a set percentage of the sale amount. With relevant keywords and well-planned strategy we can lower the CPA. Lower CPA means Higher ROI.

4. CTR (Click Through Rate):


When CPM and CPC indicate the cost of advertising, CTR measures its efficiency. This is the percentage rate at which people click on your ad banner. An ad that is published more times will have more chances of getting clicks.


An example of CTR calculation:

Let’s say an ad banner is seen 100,000 times and in the same time period it is clicked 2000 times

So CTR = (2000/100000)*100 = 2%

CTR will help you decide your campaign type – CPM or CPC? If your CTR is high, you should go in for a CPM, if its low you should go in for a CPC.

Let’s understand this with below example

Case 1: CTR is 0.2%

Lets suppose a website that you want to advertise on charges a CPM of $5.00 and a CPC of 50 cents.

And, you need to decide if you should go in for CPM or CPC?

Lets suppose you first run a pilot CPM and buy 1,000,000 impressions.

  • CPM units = (Impressions/1000) = 1000000/1000 = 1000
  • Total price = CPM unit(s)* CPM rate = 1000*5 = $5000

CTR is 0.2 % = 2 clicks per 1000 impressions so total clicks you got for 1000000 impressions are

Clicks = CTR*Total Impressions/100 = (0.2*1000000)/100 = 2000 clicks

Now, if you had bought a CPC –

Total price for CPC = clicks*CPC = 2000*0.5 = $1000

With CPM model you have paid $5000 for 2000 clicks or $2.50 per click.

With CPC Model you have paid $1000 for 2000 clicks or 50 cents per click.

So in this case go in for CPC

Case 2: CTR is 2%

Now let consider above case with CTR 2%

Total Clicks = (CTR*Impressions)/100 =  (2*1000000)/100 = 20,000 Clicks

Total CPM paid for 1000000 impressions = $5000 (means 25 cents per click)

If you had bought CPC –

Total price for CPC  =  Total Clicks*CPC = 20,000*0.5 = $10,000

With CPM model you have paid $5000 for 20,000 clicks or 25 cents per click.

With CPC Model you have paid $10,000 for 20,000 clicks or 50 cents per click.

So in this case go in for CPM.

A higher CTR results in lowering of Cost-per-click at campaign level and there are more chances of conversions.

Technical Lead at HCL Technologies

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