Types of Paid Search Marketing payment methods and which is the best one for you
There are mainly 2 types of payment methods – Cost per click (CPC) and Cost per impression (CPM). Cost per click means that you pay only when someone clicks on your ad. Cost per impression means that you pay each time your ad is shown regardless of whether your ad has been clicked on or not.You must be wondering: Wouldn’t it be obvious to choose Cost per click? Because it follows the purpose of your ads which is to get people to click on your website?The answer is NO. You have to narrow in to your objective. Your objective is to minimise cost while getting the ideal traffic.Impressions are far less cheaper as compared to clicks. This is because they are worth much less to the business. And this is one key consideration of choosing impressions.
Choosing whether to choose either one depends on a few factors:
- Click through rate
- Impressions rate
- Cost of CPC and CPM
Assume you have 2 campaigns to choose from – $10 CPM (A dollar for 1000 impressions) and $1 CPC (10 times more for one click), all you need is 10 clicks out of 1,000 impressions in order to equal the effectiveness of the CPC ad. If 1% of the people who see your ad click it, your ad is equally as expensive and equally as effective as a CPC ad. On the other hand, if your click-through rate is higher – 2%, for example – your CPM ad becomes much more effective. Calculated out, you would be paying 50 cents per click, as compared to the $1 CPC of the other type of ad. (need to rephrase this part)If your ad brings in a high click through rate as compared to your impressions, you would definitely want to opt for the CPM.
Your click through rate is very much dependent on the quality of your ad and the subsequent sales funnel.In this case, backend sales funnel means:
- What is your conversion rate backend? How many of the people who go through your site convert?
- How do you sell? And what do you sell – a $50 product or a $5,000 software?
- What is the process of selling after they get into your site? Do you have sales people to follow up rigorously?
First scenario: If your ads are good and you lack good backend funnel, CPM is better because you will get as many clicks as possible that may not convert well subsequently, and you will try not to pay for those that do not convert.Second scenario: If you ads are bad and you have good backend funnel, CPC is better because your clicks are most likely to convert due to your strong backend funnel, and you want to make sure that you only pay for the clicks that you get.Third scenario: What if you have bad ads and bad sales funnel? Then, we would advise you to buck up your ads and backend sales funnel as advertising in this case won’t be effective to you. However, if you are to go for paid search marketing in this scenario, CPC will be much better. Through CPM, your impressions may be high with low click through rate and low conversion rate backend, and this is the least desirable of all.Last scenario: This is definitely the best scenerio. Having good ads and good sales funnel most likely means that you have strong click through rate and high conversion on the backend. Test both out and check the numbers and persist the one that gives you the greater ROI.Do refer to advertisement optimisation to learn more on how to improve your ads.
How do you calculate ROI for CPC and CPM?
You can calculate CPM ROI at http://tools.seochat.com/tools/cpm-roi-calculator/And CPC ROI at http://tools.seochat.com/tools/cpc-roi-calculator/Compare both ROI and choose the method that gives you the greater ROI.