How Are Online Ads Priced? Top 4 Advertising Models
The world of advertising is changing. And in some ways, it’s becoming more complicated for advertisers and marketers to navigate.
So how are online ads priced? Read on, and we’ll explain the top 4 advertising models. You’ll learn that you don’t always need to buy on a CPC or CPM.
By understanding the advertising pricing models better, you are able to negotiate with agencies and publishers to drive better advertising outcomes or apply new bidding strategies if you choose a self-serve ad tech platform such as Google Ads or Facebook Ads.
Today, there are many online platforms, and with that come many digital advertising pricing models in buying advertising.
Online advertising pricing models that you choose will depend on many factors, including your goals and objectives, the advertising platform, campaign objectives and your advertising budget.
Let’s begin with a quick introduction to various online advertising technologies. We start with formats and types of ads because different cost methods apply to different platforms/technologies.
An introduction to the various types of online advertising:
As you’ll see later on, each model has its own benefits and drawbacks depending on the purpose for buying ads – be it traffic generation or branding. Here are a few channels you might need in your marketing mix.
Search Engine Marketing (SEM)
What is SEM?
SEM refers to ads bought through search engine ad networks such as Google Adwords, Bing Ads, Yandex etc. These PPC (Pay Per Click) ads appear when users do specific keyword searches related to your business or products/services.
For instance, if your company sells running shoes, you could bid on keywords like “running shoes” on Google.
When someone does a Google search for these keywords, your ad will appear along with other results. SEM ads are managed through the advertiser’s Google Adwords account.
Display Advertising
Display Ads are placed on dynamically-created web pages based via data-driven machine learning algorithms, mostly on publishers’ websites through programmatic ad exchanges, which are purchased via a DSP. The main difference between search engine marketing (SEM) and display advertising is that display advertisements are purchased on a CPM pricing model basis – cost per thousand views of your ad.
Programmatic display advertising is bought through real-time bidding across the open exchange and negotiated deals which are called private market places and programmatic guaranteed.
On the other hand, SEM campaigns are typically purchased on a CPC pricing model or PPC basis. There are several types of programmatic campaigns that fall within display ads, including banner ads, rich media ads, video pre-rolls, sliders etc.
Most advertisers implement both SEM & Display strategies to achieve different goals like branding vs direct response goals.
Native Advertising
What is Native Advertising?
Native advertising refers to a type of paid media where the ad experience follows the natural form and function of the user’s environment.
In other words, native ads are designed and placed in a way that they blend in with their surroundings – much like how you’d expect regular content to appear on any given website or social media newsfeed.
You’ve probably seen examples of this in the form of promoted content on social media platforms like Facebook, Instagram or Twitter. Native ads are often paid for using a CPM pricing model in the programmatic world, but across social media and Google Ads, they are typically purchased on a CPC, Cost Per Click bidding model.
Affiliate marketing
What is affiliate marketing?
Affiliate marketing refers to an arrangement where one company (the publisher) promotes a product/service of another company (the advertiser) and receives a commission based on referrals or sales made by your audience. For example, you own a blog about gadgets selling cameras.
You could join the Amazon Associates affiliate network and promote Canon cameras on your site with links that track user behaviour through cookies. If someone buys something after clicking the link, you get paid for sending them to Amazon’s customer checkout page – like a percentage of their total purchase or a specific amount per item.
Mobile app campaigns
What is an app campaign?
Similar to other forms of online advertising, app ads can be purchased through either search or display ad networks. One way to do this is through the Google Adwords and Apple Search Ads platforms (formerly known as iAD).
App campaigns are set up much like PPC (pay per click) ads, where you bid on keywords your target audience might use during a search query – such as “ios games”.
Advertising pricing models – Quick Look
Now that we understand a few formats and types of advertising campaigns, let’s take a look at the various advertising pricing models, which will really vary depending on the channel you are using. Given there are so many platforms, we’re focusing on the main social platforms and their respective bidding models.
- Google Adwords – pay per click (PPC) common in search ads
- Facebook Ads – CPM (cost per thousand or cost per mille), CPV Cost Per View model & CPC model
- YouTube Ads – CPM model & CPV
- LinkedIn Ads – CPM & CPC
- Twitter Ads – CPM, CPC
- Programmatic Display/video and native advertising – CPM
- Google’s Display Network – CPM
- TikTok – CPM & CPC
- Snapchat – CPM & CPC
Deep Dive – Online Ads Pricing
The main models can be broken down into
- Flat fee
- Cost per Click (CPC)
- Cost per Mille (CPM)
- Cost Per Action (CPA)
- Cost Per Acquisition (CPA)
- Cost Per Lead (CPL)
- Cost Per Download (CPI)
- Cost Per Install (CPI)
Flat Fee (FF)
The flat fee is a time-based model and one of the most basic. Relating solely to the time the ad is active, whether that’s a day, week, or month, the advertiser is charged a flat rate for this period.
Deeper info on the user, such as statistics, impressions, or general user actions, is not included. This makes it one of the cheaper options but also less thorough.
The benefit is that if you’re concerned about budget, all the costs are known upfront, so you don’t risk running over.
You would only ever use a flat-fee pricing model based on time if you are working directly with a very small publisher, this type of business model was prevalent in the early days of advertising, and we have moved to different pricing models today.
Cost-Per-Click (CPC)
Cost-per-click (CPC) is a quantity-based model that is common with sponsored social media and display ads on web pages and Google ads. It’s regarded as one of the most popular and cost-effective forms of advertising.
With this format, the advertiser is only charged per click, which saves money being wasted on showing ads to an uninterested audience. Also, clicks can be a useful measure of ad yield as they can reveal the number of potentially interested users.
The drawbacks for advertisers are that keywords are becoming more expensive, and clicks do not guarantee action. A click might have been accidental, or the user might have left the ad in seconds and not interacted how you wanted them to.
Unlike FF ads, the costs can fluctuate depending on the number of clicks generated, so the upfront price won’t be as predictable. And depending on the average cost, ads will only be shown to users that are expected to click.
The average CPC will vary based on many factors, such as target audience location and industry. But one of the main factors is the quality score that Google Adwords and Facebook give to all advertisers, and it affects how much you’ll be charged for your clicks.
Cost-Per-Thousand/Mile (CPM)
Cost-per-thousand (CPM) is most common for video and display advertising, especially in programmatic advertising. A flat rate is set for every 1000 views, which is often effective for direct sales, as well as brand and product awareness campaigns.
Like with the FF model, the cost is known upfront and can be set within a budget relative to the cost per 1000 views.
The bad thing for advertisers is that it’s not based on clicks, so there’s no guarantee any action was taken from the ad as this user behaviour is not measured. This means you’re paying for impressions over clicks, which might not be for everyone.
How do you calculate the cost of CPM ads?
CPM = 1000 * cost / impressions or try this handy calculator.
Cost-Per-Action (CPA)
Cost-per-action (CPA) is a performance-based model that is the safest for the advertiser, with the cost only coming when an action is taken, meaning no bad leads. These are more specific than CPL and can be reliant on things like a purchase or service sign-up.
CPA is great for those looking for quick purchases, in particular, helping industries such as financial services, insurance, and professional services that have a high purchase barrier.
Like the other models, which look at user behaviour, the price is not set beforehand, so a more open budget would be needed.
CPA can be broken down into further categories, which we’ll jump into now. The top 3 include:
Cost-Per-Lead (CPL)
The price is based on the user filling out online forms, usually with personal data. The cost of this can increase depending on the complexity of the form. This is a very common approach in B2B advertising.
Cost-Per-Sale (CPS)
This type often has the highest prices as it’s used by large online retailers and requires the purchase of a product or service. This is common in affiliate advertising.
Cost-per-Download (CPD)
The cost is based on a user downloading specific material or downloading an app.
Cost-per-Install (CPI)
The cost is based on a user downloading an app and installing it, and then opening it.
Hybrid pricing models:
Hybrid models offer an even more tailored model. With so many models to choose from, the above models are not set in stone, and you have the choice to blend them if you can.
Great stuff!
You’re starting to learn a little more about the process by which ads are priced.
Marketing / Advertising Agency
If you are reading this article, it’s likely because you are still learning about digital advertising.
If that’s the case, you perhaps should consider working with an agency.
If you decide to work with a digital marketing/programmatic agency, you should expect that they will guide you as to the best way of buying online advertising and which pricing model you should use to lower advertising costs and increase your return on investment (ROI).
A programmatic agency will take on the full management of this process, so you, the advertiser, can focus on other aspects of their business while the agency does its job to ensure that adverts are shown to potential customers at the right time and you don’t get bogged down in a million different ad formats furthermore trying to figure out which pricing model is best for you.
So, what’s the best model of online advertising for me and my campaign?
Depending on which site, audience, and style of campaign you’re looking for, each model has its pros and cons.
If you’re still not sure which one is for you, Advant Technology can help.
We’ve run hundreds of video and display campaigns on various pricing models to get our clients more bang for their buck. So. if you want to run a campaign with any of the common pricing models discussed in this blog post, reach out!
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