Online advertising is the modern marketing world's battleground for product placement and consumer development. CPA (or cost-per-action) and CPM (or cost-per-thousand, using the Roman numeral for 1,000, or "M") are two strategies of generating website traffic, earning ad publishers money and generating advertiser sales. Several factors determine which of these strategies is better: user traffic on websites, consumer market for advertised products and desired publisher pay rate.
Earning Higher Profit
The CPA method of online advertising only pays the publisher for ad clicks that translate into actions and profit for the advertiser. These actions can take many forms, including website traffic, product sales, email newsletter sign-ups and item downloads. The variety of actions leads to increased profitability for the publisher and also provides the advertiser a quantifiable way of determining the success of website advertising. This method provides the greatest potential for advertising profit when ads appear on websites with high traffic numbers, including popular blogs, search engines and news sites.
Negotiating Advertising Prices
CPM advertising pays the ad publisher for every 1,000 impressions each advertisement receives. An impression is a term representing the number of times a website displays an advertisement. In 2005, the Independent Association of Businesses (IAB) established guidelines for how websites and advertisers should count impressions for calculating CPM pay rates. These guidelines allow publishers and advertisers to negotiate pay rates per 1,000 impressions, providing for more flexibility in advertising costs than the CPA model.
Measuring Not Mandatory
The method for measuring impressions for CPM advertising is not mandatory. As of May 2011, many large companies, including Microsoft, AOL and Google, have agreed to abide by the IAB's measurement standards, but many others still choose not to comply. This leads to disputes over pay rates for CPM advertising. By contrast, CPA advertising provides a much more concrete method of determining pay, because both the publisher and advertiser can point to the number of actions generated from ad traffic as proof.
Niche Markets and High Traffic
High traffic websites are necessary to make CPM advertising an affective model. This is because advertisers are only paid per 1,000 impressions. This same reason is why CPM advertising is not well-suited for niche market products, as the corresponding websites usually have lower traffic numbers. CPA advertising is better suited for higher traffic websites but only if these sites also have high conversation rates. Conversion rates are the percentages of advertising that actually generate corresponding website visits. Advertising is only beneficial in the CPA model if the content actually gets consumers to the appropriate website.
