The internet has a language all of its own and online marketing is certainly no exception. So, if you’re thinking of advertising your business online and fall at the first hurdle with all of the jargon you encounter, then this article should help get you on your way.
If you decide to advertise your business on-line, you will undoubtedly come across a whole new language associated with this form of marketing. The most commonly used of these jargon words and phrases however, tend to relate to the different charging mechanisms that are available for on-line advertising campaigns.
While there are a host of terms and phrases used in the online marketing industry, only the most common are covered here, such as PPC, CPM, CTR etc.. However, while this post offers a brief introduction to these terms, it does not provide any in-depth explanation as to the best systems to use or how to use them, as this will often vary depending on your specific circumstances and requirements.
PPC – Pay Per Click
Pay Per Click (PPC) is by far the most common method of paying for advertising on the internet, partly due to the popularity of the Google AdWords system. While you may not have heard of Google AdWords directly, you will probably have seen their adverts on numerous websites (including this one), with the text “Ads by Google” next to them. For example, the advert below was displayed on my Plant Advice website by Google AdWords:
Using Google AdWords as a PPC service to advertise your company, your adverts will be displayed on websites appropriate to your company and products. For example, if your company sells plants on-line and you are specifically promoting grasses, the ad system will try to place your adverts on pages that relate to grasses.
Using this method, you only pay when somebody actually clicks on your advert. Your advert may be displayed thousands of times, yet if nobody clicks on your advert, it won’t cost you a penny! This can be quite a cost effective method of advertising, as you’re only paying for traffic that is actually brought to your website.
CPC – Cost Per Click
Using a PPC service to advertise your company or product, you will be charged for every click on your advert. The CPC, or Cost Per Click, is the cost that you will be charged for each of these clicks.
The cost of each click can vary tremendously depending on which advertising service you use and how competitive the advertising is in the market area that you are targeting. Typical values are in the order of $0.10 to $1.00.
For example, if you spent $100 on a PPC advertising campaign and your advert was clicked on 80 times, your effective cost per click would be:
CPC = Total Campaign Cost ÷ Number of Clicks
CPC = $100 ÷ 80 = $1.25
CPI – Cost Per Impression
An alternative online advertising method to the PPC system, is one where you get charged every time your advert is displayed, whether it gets clicked on or not. The cost per impression is the cost to you for every advertisement shown on a website.
For example, if you agreed to have your advert displayed on a website 10,000 times and you were charged $100 for this, the effective cost per impression would be:
CPI = Total Campaign Cost ÷ Number of Impressions
CPI = $100 ÷ 10,000 = $0.01
That is, it would cost you $0.01 every time your advert was displayed.
CPM – Cost Per Thousand Impressions
Popular websites can display thousands of pages each day, as such, rather than using the CPI figure above, a version more appropriate to the large number of pages typically viewed on a website is CPI’s big brother; CPM.
CPM is the cost that you will pay for every 1,000 advertisements shown on a website. The M comes from the Latin for 1,000; mille, also from the Roman numeral for 1,000, which is M.
For example, if you pay $100 for a website advertisement, which 10,000 people see, the effective cost for 1,000 impressions would be:
CPM = (Total Campaign Cost ÷ Number of Impressions) x 1,000
CPM = ($100 ÷ 10,000) x 1,000 = $10.00
CPM = CPI x 1,000 = $0.01 x 1,000 = $10.00
That is, it would cost you $10.00 for every 1,000 adverts displayed.
CPM tends to be used in preference to CPI in the online marketing world.
CTR – Click Through Ratio
The Click Through Ratio, or Click Through Rate is the percentage of users who click on a viewed advertisement and is usually a good indication of the effectiveness of an advertisement. The more people that click on an advert, the more successful the ad.
Average click-through-rates vary depending upon the type of site and visitors, but are typically of the order of 1%, or 1 in every 100 visitors clicking on the advert.
A click through ratio can be calculated by dividing the number of times the advert was clicked on by the number of impressions (number of times the advert was displayed) then multiplying by 100 to get the percentage.
For example, if an advert was displayed 10,000 times and 80 people clicked on the ad, the effective click through rate would be:
CTR = (Number of Clicks ÷ Number of Impressions) x 100
CTR = (80 ÷ 10,000) x 100 = 0.8%
Mixing It Up
As an example to see how all of these terms can be inter-related, let’s assume that we took out an advert with a website to display our ad 10,000 times, which cost us $100. After running this campaign, we measured that the advert was clicked on 80 times. From this we can calculate the following:
CPI = $100 ÷ 10,000 impressions = $0.01
CPM = CPI x 1,000 = $0.01 x 1,000 = $10.00
or CPM = ($100 ÷ 10,000 impressions) x 1,000 = $10.00
CTR = (80 clicks ÷ 10,000 impressions) x 100 = 0.8%
CPC = $100 ÷ 80 clicks = $1.25
Hopefully this handful of three lettered, online marketing acronyms now makes a little more sense and don’t seem quite so daunting. So, in future, when you see any of the following, you should have a good idea of what’s going on:
- PPC – Pay Per Click
- CPC – Cost Per Click
- CPI – Cost Per Impression
- CPM – Cost Per Thousand Impressions
- CTR – Click Through Ratio
And to calculate any of these values, you can use the following formulae:
- CPC = Total Campaign Cost ÷ Number of Clicks
- CPI = Total Campaign Cost ÷ Number of Impressions
- CPM = (Total Campaign Cost ÷ Number of Impressions) x 1,000
- CPM = CPI x 1,000
- CTR = (Number of Clicks ÷ Number of Impressions) x 100