If you purchase ads online, the cost of advertising is likely presented in CPM, CPC, or CPA. All these abbreviations are a part of the online marketing lexicon nowadays. The acronyms are most familiar among those in the advertising industry or in a marketing role. For the typical business owner, these are often completely new terms that need to be defined.
As a hotel manager and potential advertiser, you should have a basic knowledge of these pricing structures.
Wish you had better insight into your past and present advertising investments? Would you like to save money on your future online campaigns? Do you want to outperform other hoteliers in your area?
If you answered “yes” to any of these questions then keep on reading.…
In this post we’ll review:
- The specific meanings of CPM, CPC, and CPA
- Their similarities and differences
- The pros and cons of each
Ok, let’s get started.…
Why do all abbreviations start with “CP”?
CP stands for “cost-per”. Each of these acronyms starts with these same two letters because you pay “per” the number of times an ad is either viewed (CPM) or clicked (CPC) or a transaction/purchase is made (CPA). In your case, this could be the number of times a guest books a room in your hotel or subscribes to receive emails after clicking on your ad.
What exactly do CPM, CPC, & CPA mean?
As an advertiser, you can track the individual actions completed by potential guests online once they see your ads. This opens up different ways in which you may pay your publishers, based on certain criteria.
There are the three main models to price online advertising:
- Cost-per-thousand (CPM)
- Cost-per-click (CPC)
- Cost-per-action/acquisition (CPA)
There are other pricing techniques, but CPC and CPA are the most common.
How do they differ from one another?
When you, the advertiser, purchases ads by CPM, you are ensuring that your ad will be displayed until it has been viewed 1000 times.
CPM is one of the oldest ways to buy and sell digital ads, and it’s still a method used today. Most often, it is employed in direct ad sales or for branding campaigns in which the main objective is to increase awareness of a company, product, or service.
With this ad pricing method, you as the advertiser agree to pay your publisher a prearranged amount for every 1,000 impressions made (of your ad). So, if a publisher sells you an ad at £ 200 CPM, it’ll cost you £ 0.20 per impression (each time the ad is loaded onto a site it counts as one impression, or view).
Note that CPM rates vary significantly. The range is so wide (from pennies to pounds) because each site has a vastly different audience. Sites targeting valuable web traffic are often priced with a higher CPM, while those targeting not-so-relevant audiences (in this case for your hotel) will have a lower CPM.
What if you want clicks instead of just views?
CPC is the standard approach of advertising services. For example, Facebook and Google Adwords use this method of hotel marketing. Chances are, if you are familiar with any ad-buying practices, then this is the one that you’ve heard of. You may know it as “PPC marketing” instead, which refers to the concept of “pay-per-click”.
When choosing CPC, you as the advertiser agree to pay your publisher for the clicks your ad gets, regardless of the amount of impressions (those who see it but do not necessarily click on it). In other words, you pay for potential guests or customers sent from the publisher’s site to your hotel site. This is great because you don’t pay for general brand awareness generated via overall exposure and viewership (like CPM). Instead, you are only paying for actual actions taken by leads. So if you buy ads at a £0.20 CPC, with a £ 100 budget, then you expect to get 500 clicks during your advertising campaign. You may have 1,000 views for the ad but only actual clicks are charged against the campaign budget.
CPC rates are often set through bidding. Hence, if you bid more, your ad will appear in a higher position: Higher rank usually translates to more clicks; however, the CPC will increase too. So if you bid too little, your ad won’t rank high enough to get a sound number of clicks; if you bid too much, you’ll possibly end up paying more to your publishers than what you can recover in sales.
Consequently setting an optimal bid price is crucial to avoid wasting your budget by showing ads to audiences with low relevance to your hotel.
Now, if you wonder how the average CPC could be determined; you should take the total cost of your campaign and divide it by the total number of received or anticipated clicks.
What if you want potential guests to actually book or do something else after they’ve seen and clicked on your ad?
CPA advertising tracks the users clicking on an ad and determines if those users also perform a desired transaction on the destination site. Therefore, in a CPA agreement, you pay for each time a user takes a specific action such as a booking, newsletter sign-up, download, or “acquisition”.
This ad pricing method clearly has a low risk for you as the advertiser since you will pay only for your desired outcome. As a result, if an advertising campaign shows a strong conversion rate over time, it could be appropriate to switch it from CPA to CPC to reduce spend.