PPC

Pay Per Click

Performance Campaigns – Pricing Models

On performance based campaigns the advertiser pays only for measurable results (sales, leads, downloads, registrations etc.) while in the field of advertising, and digital advertising in particular, pricing is usually determined regardless of results.

In order to run performance campaigns the advertiser needs to provide a tracking tool to count the billable actions that will show up on an agreed upon platform so all relevant parties could count these actions. The most common tracking tool is the tracking cookie (nicknamed ‘pixel’ after the physical size of the image containing it – just 1×1 pixels) which “fires” whenever a user completes an action and signals  the advertiser and the publisher of the completed action.

Performance campaigns have a few pricing models:

CPA – Cost Per Action (past: Cost Per Acquisition), a very common performance model in which the advertiser only pays a publisher for sales generated from their traffic.

CPL – Cost Per Lead, the new generation of CPA campaigns, in which the advertiser pays for leads: contact information left by users. Usually the lead is just another phase in the path from an ad impression to the sale and the higher the lead/sale percentage is better – the traffic is considered to be more valuable. Some companies sell these leads to 3rd parties and they primarily care for generating as many leads as possible, but they will also care about the quality of the leads as that would determine how much they would be able to pay for them.

CPI/CPD – Cost Per Install/Download, a common pricing model for software distributers of freeware and shareware products. Under this model advertisers offer free downloads of their software and either bill the user after a demo period or generate their revenue by adding a toolbar by search engines (such as Bing i.e.) which pays them for each download.

All of the above describes the old fashioned performance models. All of them are dependent on the effectiveness of the campaign – how many quality users was the publisher able to provide for the advertiser (and ‘push’ them towards the sale/lead/download etc.). In order to calculate effectiveness for each of the non-CPA models (which is considered to be “pure performance”) we use the term eCPA, or effective CPA, meaning what was the actual cost for the advertiser which generated one sale (action). In basic terms, how much did one sale actually cost the advertiser.

Performance campaigns on big networks aren’t as simple to manage. If the network has a wide variety of publishers and traffic sources – finding the best match between the advertiser and its matching traffic source is practically like finding a needle in a hay stack. This is one of the advantages of Marimedia, as we believe that finding that needle is our challenge, we’ve developed our own methods of finding as many needles as possible. One of these methods is using dynamic CPM – dCPM for all performance campaigns by default.

Dynamic CPM pricing for performance campaigns is does not seem very attractive at first glance, but that is mostly because advertisers are easily deterred from any non-CPA model.  Dynamic CPM enables a campaign manager at Marimedia to buy and sample a long variety of traffic sources on dynamic CPM bids within a pre-determined range and under a specific ROI target. Now don’t get too confused, I’ll straighten it all for you in a second…

If you still don’t remember what dCPM is you probably overlooked Galia’s excellent post but basically, when talking about a bid-system based ad-network, buying on dCPM is a way to buy media on multiple bids (eCPM bids) from several traffic sources in order to pinpoint the specific traffic source (and it’s worth) which will generate your sales on the lowest possible price. It is still a CPM model – meaning the advertiser is paying for impressions and not sales, but setting a reasonable ROI target helps us get to your expected eCPA after a short  learning phase (which we call a test campaign).

When clients ask for pure performance, meaning that they don’t want to work on dCPM, they are mistaken because when using a good and accurate tracking tool enables us to reach at least the same eCPA using dCPM and on the way locate a variety of traffic sources which they would never find while running only on CPA.  This is because dCPM is much more accurate and wide ranged in its media buying targeting.

Unlike affiliate networks (which on 99% of cases work only with CPA/L) Marimedia has the ability of delivering great results on hybrid media buying models of CPA + dCPM, and sometimes even CPC. In that way we reach all available traffic sources on our network and hit the advertiser’s targets. Affiliate networks on most cases will generate the sales by arbitraging them to ad networks like Marimedia, so why not go straight to the source?

To conclude, when one talks about display performance campaigns he or she usually means one of the CPA/L/I models mentioned above, but to reach the desired eCPA we at Marimedia offer a hybrid model of CPA + dCPM which will get the best possible performance and results after a short and reasonable learning period. For any further questions about performance campaigns feel free to contact me (Yoav Gal) at: yoav.g@marimedia.net anytime.

dCPM and other common online advertising performance models

What is CPM?

Cost Per Mille. Usually reects the price of 1000 banner impressions in dollar currency. Payment depends on the number of impressions solely. For example, a banner is being shown 200,000 times at CPM of $0.5, means that the payment by
theadvertiser to the publisher would be 200,000 * 0.5 / 1000 = $100.

Advantages
– The advertiser knows exactly how many times the banner will be shown, and what would be his daily / total costs.
– Common model when buying media against a specic URL / site / ad spot.
– CPM is being prioritized rst by ad-networks since the publisher knows exactly what the expected revenue per impression is.

Disadvantages
– Very weak performance matrix, very weak correlation with sales or leads.
– No indications for the advertiser on banner, campaign or media quality.
– When dealing with multiple sites or ad spots advertiser might receive cheap media instead of eective media.
– Eective frequency capping is unknown.

Day 1 Day 2 Day 3
Impressions 200,000 150,000 200,000
CPM [_xed] $0.50 $0.50 $0.50
Cost $100 $75 $100

What is CPC?

Cost Per Click. Known also as pay-per-click (PPC) from the publisher’s point of view. In this model the advertiser pays for each click made on a banner impression. Payment depends on the number of clicks solely. For example, a banner is being
shown 200,000 times, and being clicked 1000 times at a cost of $0.08 per click. The Click through rate – CTR in this case is 1000/200,000 = 0.5%. The cost to the advertiser would be $0.08 * 1000 = $80. Since the advertiser paid $80 for 200,000
we say that his Eective CPM (or eCPM) is 80/200 = $0.4.

Advantages
– The advertiser knows exactly how many times his landing page / site will be clicked, and what would be his daily / total costs.
– The banner will be shown until enough clicks are being generated
– Common model when looking for exposure with no direct lead or sale goals
– CPC is optimized quiet fast by optimizing ad-networks to generate high CTR
– Reasonable indicator for banner quality

Disadvantages
– Weak correlation with Sales or Leads
– Dependable on click tracking technology and measurement
– Weak performance matrix, vulnerable to click frauds
– No indication for campaign quality (only banner quality)
– Advertiser might receive cheap media instead of eective media
– Eective frequency capping is unknown

Day 1 Day 2 Day 3
Impressions 200,000 150,000 150,000
Clicks 1000 1500 1000
CPC [_xed rate] $0.08 $0.08 $0.08
Cost $80 $120 $80
eCPM $0.40 $0.80 $0.53

What is CPL CPA CPS?

Cost Per Lead / Cost Per Acquisition / Cost Per Sale. In this model the advertiser pays explicitly per transaction type made by the buyer that resulted from a click on a banner impression. Payment depends either on the cost of lead, cost of sale or a
percentage of the sale’s revenue. For example, a banner is being shown 200,000 times, and being clicked 1000 times. 10 clicks converted to a lead where the advertiser pays 5$ per lead. The total advertising cost would be 10*5 = 50$.

Advantages
– The advertiser pays according to results only.
– The banner will be shown for unlimited period of time.
– Preferred model for the advertiser. Zero risk on his side.
– Low vulnerability to frauds.
– High correlation between sales and campaign and banner quality.

Disadvantages
– Publisher will not allocate premium media for questionable prot
– Publisher will refuse to work in this model when cpm / cpc models can ll his inventory
– Dependable on conversion tracking technology and measurement.
– Hard for the publisher to estimate when to stop a campaign

Day 1 Day 2 Day 3
Impressions 200,000 150,000 200,000
CPL [F_xed rate] $5 $5 $5
Leads 10 15 12
Cost $50 $75 $60

Note: There are many other Cost Per Action models, like Cost per Call (for cellular advertising), Cost per Download (for downloadable products), Cost per View (a common term for video based advertising). Advertisers who claim to support all
available model sometimes use the term CPE – cost per everything.

What is eCPA?

In order to explain what dCPM is easily, we need to introduce the term eCPA – effective cost per action. We add an action count (Lead for instance) to the previous examples, and calculate how much did the advertiser actually paid for each Lead act. Lets assume the advertiser is protable when he pays 5$ per lead.

eCPA on a CPL/CPA/CPS model
Here naturally, the eCPA is the predened CPL.

Day 1 Day 2 Day 3
Impressions 200,000 150,000 200,000
CPL [Fixed rate] $5 $5 $5
Leads 10 15 12
Cost $50 $75 $60
eCPM $0.40 $0.50 $0.30
eCPA [Fixed rare] $5 $5 $5

Although the cost per Lead was as desired by the advertiser, the publisher might drop the campaign receiving only $0.3 eCPM on day 3.
eCPA on a CPM Model
In this case, the eCPA reects the total cost each day divided by the number of leads.
We can see that the advertiser has very little control regarding the price he pays for
each lead.

Day 1 Day 2 Day 3
Impressions 200,000 150,000 200,000
CPM [Fixed rate] $0.50 $0.50 $0.50
Cost $100 $75 $100
Leads 10 15 12
eCPM [Fixed rate] $0.50 $0.50 $0.50
eCPA 100/10 =$10 75/15=$5 100/12=$8.3

eCPA on a CPC Model
Similar to the CPM model, the eCPA reects the total cost each day divided by the number of leads. Although sometimes there is some correlation between the number of clicks and the number of acquisitions, still the advertiser has little control over the price he pays for each lead.

Day 1 Day 2 Day 3
Impressions 200,000 150,000 150,000
Clicks 1000 1500 1000
CPC [Fixed rate] $0.08 $0.08 $0.08
Cost $80 $120 $80
eCPM $0.40 $0.80 $0.53
Leads 10 15 12
eCPA 80/10=$8 120/15=$8 80/12=$6.6

Although the publisher in this example receives satisfactory eCPMs, the advertiser is not protable at $8 per lead.

Solution:
Dynamic CPM with a CPA target

What is dCPM with a CPA target?

Dynamic cost per mille with a cost per action target. This model is the most effective and balanced both for the advertiser and the publisher. In this model the the advertiser continues to advertise as long as his eCPA is under his CPA goal, and
the publisher decides to advertise as long as the CPM he receives is higher than the competing advertisers. This is why neither the CPM nor the eCPA in this model is fixed. The following example describes the decision making process:

Day 1 Day 2 Day 3
Impressions 100,000 150,000 200,000
CPM $0.40 $0.50 $0.60
Leads 10 15 16
Cost 100*0.4=$40 150*0.5=$75 200*0.6=$120
eCPA 40/10=$4 75/15=$5 120/16=$7.5

Analysis: On day 1 the optimization process sees that the advertiser is protable and even has a margin as he pays $4 for a $5 worth leads. This usually means that by driving more trac, more leads can be obtained. On day 2, more leads have been
obtained, advertising still paying under his target lead price. On day 3, even more traffic is being bought breaking the CPA limit of the advertiser. The optimization process decides to reduce trac for the campaign.

Day 4 Day 40
Impressions 150,000 150,000
CPM 0.5 $0.30
Leads 15 5
Cost $75 $45
eCPA 75/15=$5 $9

Analysis: The campaign maintains a good balance between the eCPA for the advertiser and the CPM for the publisher until day 40 where even at the price of $0.3 CPM the campaign is not eective anymore at an eCPA of $9. Publisher cannot
decrease the price since other advertisers bid more and advertiser is not protable.
The campaign is dropped.

Advantages
– The advertiser is optimized toward paying according to results only.
– The publisher does not advertise unless advertiser pays minimal price.
– The banner will be shown for unlimited period and unlimited amount of time as long as being eective for both sides.
– Good balance between advertiser’s risk and publisher’s prot.
– Low vulnerability to frauds.
– Allows the advertiser to compete over premium media with high CPM at low risk as long as his campaign is eective.
– Campaign stops automatically.

Disadvantages
– Advertiser has to risk an initial sum before seeing results.
– Dependable on conversion tracking technology.

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