CPM, CPC, CPA . . . meaning what, exactly? Anyone in the advertising industry or in a marketing role will be all too familiar with these terms — which are abbreviations for different pricing models for online marketing campaigns, by the way. But for independent hoteliers new to the online marketing scene, these may very well be completely new terms that need to be defined.
So define them we shall.
Why do all abbreviations start with “CP”?
“CP” stands for “cost per.”
Each of these acronyms starts with these two letters because you pay “per” the number of times a potential guest sees your ad online (CPM), clicks on it (CPC), or completes an action after engaging with it (CPA).
In hotel marketing, this could be, for example, the number of times a traveler clicks on your website rate displayed on trivago (CPC), or books your hotel through an OTA after seeing their ad (CPA).
What exactly do CPM, CPC, and CPA mean?
These are the three main models for pricing online advertising:
Cost per mille, or cost per 1,000 impressions. You pay each time an ad is displayed to a user — also known as an impression.
Cost per click. You pay each time a link to your site is clicked. This is the model trivago uses for both OTA advertisers and the hoteliers who promote their website rates on their hotel profiles.
Cost per acquisition, or cost per action. You pay each time a traveler completes a specific action: for example, each time a traveler completes a booking.
A closer look at CPM, CPC, and CPA
When you, the hotel advertiser, purchase ads by CPM, you’re ensuring that your ad will be displayed until it has been viewed 1,000 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’s employed in direct ad sales or for branding campaigns in which the main objective is to increase awareness for a company, product, or service.
With this ad-pricing method, you agree to pay the marketing channel a prearranged amount for every 1,000 impressions made (of your ad). So, if a channel sells you an ad at a $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 cents to dollars) 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 will have a lower CPM.
What if you want to pay for clicks instead of views?
CPC is the standard approach of advertising services. For example, Facebook and Google AdWords use this pricing structure. Chances are, if you’re familiar with any ad-buying practices, then this is the one you’ve probably heard of. You may know it as “PPC marketing” instead, which refers to “pay-per-click.”
With CPC, you as the advertiser agree to pay the marketing channel for the clicks your ad gets, regardless of the number of impressions. In other words, you pay for the potential guests sent from the channel to your hotel site. You’re 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 higher, your ad will appear in a higher position: A higher rank usually translates into more clicks; however, the CPC will increase, too. So if you bid too low, your ad won’t rank high enough to get a sound number of clicks; if you bid too high, you’ll possibly end up paying more to the marketing channel 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: Take the total cost of your campaign and divide it by the total number of received or anticipated clicks.
What if you want to pay for potential guests to 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 newsletter sign-up or a booking.
This ad-pricing method is the one preferred by most online travel agencies and is also known as the commission cost. While the risk of a CPA campaign is low for you as the advertiser, since you pay only for the bookings you receive, it’s not common to find this pricing model for a direct booking campaign.
In advertising a hotel online, it’s important to clearly define the goal of any marketing activities, as this will determine which marketing channels to invest in and how you will be charged for those activities. And whether the aim is to raise brand awareness, drive direct bookings, or increase occupancy via OTA partners, you can be bet you’ll be paying for the results according to one of these three pricing models: CPM, CPA, CPC. So the more you know about them, the better prepared you are to run effective online marketing campaigns with high ROIs for your hotel business.