Cost models in digital advertising are the methods used to calculate the cost of placing advertisements on digital platforms such as websites, social media, and mobile applications. These models consider various factors, such as the target audience, advertising goals, and budget, to determine the most effective way to charge for ad placements. The cost models vary, with some charging for impressions, clicks, or desired actions such as sales or sign-ups. The choice of cost model can significantly impact a digital advertising campaign's success and return on investment (ROI). Therefore, it is important for advertisers to carefully consider and select the most suitable cost model based on the campaign's specific goals and target audience.
Different cost models focus on different metrics and can be more or less appropriate for various types of campaigns. Understanding the varieties cost models available and when and how to use them is essential for maximizing your advertising budget and achieving your goals.
Below are some of the most common cost models used in digital/mobile advertising:
Cost per mille (CPM) is a model where advertisers pay for every thousand impressions of their ad. Impressions can be calculated based on the number of times an ad is displayed, regardless of whether it was clicked or not. This model is best suited for brand awareness campaigns where the focus is on increasing visibility and reach. The main advantage of CPM is that advertisers can guarantee a certain number of impressions, which can be useful for building brand recognition.
Cost per click (CPC) is where advertisers pay for the ad clicks. This model is best suited for campaigns aimed at driving traffic to a website or generating leads. The main advantage of CPC is that advertisers only pay for clicks, which is more cost-effective than paying for impressions.
Cost per action (CPA) model is where advertisers pay each time a desired action is taken, such as a sale, lead, or sign-up. This model is best suited for campaigns that generate conversions or maximize the return on investment (ROI). The main advantage of CPA is that advertisers only pay for results, which is the most cost-effective pricing model for generating conversions. In addition, advertisers should beware that the CPA model may cost more than cost models focusing on impressions or clicks because the target action is generally more challenging to generate.
Cost per install (CPI) is a cost model where advertisers pay each time a mobile app is installed due to their ad. The CPI model is used for mobile app promotion campaigns. The main advantage of CPI is that it provides a clear return on investment, as advertisers only pay for successful installations.
Using the cost per engagement (CPE) model, advertisers pay for each engagement with their ads, such as likes, shares, or comments. This model is used for social media advertising campaigns. The main advantage of CPE is that it is cost-effective, as advertisers only pay for engagements.