Online Advertising 101 for writers: Rates and Prices

Advertising 101 for Writers: [B1] Prices and Rates

Let’s start with our first lesson of the course “Advertising 101 for Writers“. In this lesson, we will look at fundamental definitions about Prices and Rates.

To understand the metrics below, we’ll need to clarify a few basic definitions that we will reuse during all these articles.

  • Impressions: number of times your ad is displayed.
  • Click: number clicks on the ad.
  • Conversion (aka Purchase or Acquisition): number of downstream actions that happen because of your ad. Depending on what you want to obtain, these can be purchases of your book but also subscriptions to your mailing list or anything else.

Expense Metrics (Prices):

Traditionally, there are three ways you can pay for your advertising. Whatever the way, when measuring how your ads are performing, you can always convert one cost into the other if you know the total number of impressions, clicks and conversions. The names I will be using below are common across many advertising platforms. Knowing these definitions we will have an easier time when we will look at the various advertising platforms.

CPM (Cost per Mille): CPM represents the price you pay to display one thousand impressions – a single ad impression is too cheap to worry about it in isolation!

    \[ CPM = \frac{expenditure}{impressions} \]

Some platforms will make you pay ad-display in CPM. In such case, you will be paying for ads displayed regardless of them receiving any click. Such platforms are generally high-volume generating ones. It can be useful to use them whenever you are interested in reaching a lot of customers (and not necessarily in achieving conversions).

If you are paying your ads in this way, you should closely monitor how these are performing to avoid burning your budget on low-performing ads.

CPC (Cost per Click): CPC represents the price you pay every time someone clicks on your ad.

    \[ CPC = \frac{expenditure}{clicks} \]

Some platforms will make you pay ad-display in CPC (Facebook, for example, lets you choose between CPM and CPC). When you pay in CPC, you might virtually get a good volume of free impressions, although it is debatable if such impressions really have any value. Regardless, if you can choose, and you are on a low budget, CPC might be your best bet.

We will discuss more on the advantages and disadvantages of CPC and CPM when chosen as ways to pay for ads in the next lessons.

CPA (Cost per Acquisition): Ultimately everything boils down to CPA. In this context, with “Acquisition” we mean any type of Conversion we are interested in obtaining.

    \[ CPA = \frac{expenditure}{conversions} \]

It is rare to find any platform that allows you to pay directly in CPA – in effect, it is hard to achieve given you are the only one knowing what a conversion is and when it happens.

The three can also be used as metrics to measure how effective your ads are. Even if you pay your ads using one, you can still measure their performance with any of the others. For example, even if you are paying in CPM or CPC, you can always compute your CPA. Just divide the price you paid (expenditure) by the total number of conversions. The logic is similar for the other metrics.

Performance Metrics (Rates):

CTR (Click-through rate): CTR is the ratio of clicks to impressions.

    \[ CTR = \frac{clicks}{impressions} \]

It gives you a good idea of how much attention your ads are able to drive.

On the flip side, it doesn’t give you any indication of the ability of your ads to convert into purchases (or any other action you might be interested in driving).

CVR (Conversion rate): CVR is the ratio of conversions to clicks.

    \[ CVR = \frac{conversions}{clicks} \]

It is useful to evaluate the effectiveness of your ads in driving actual conversion. It is up to you to define what a conversion is (whether it is a purchase of your book, a new subscriber to your mailing list or something else).

Because it is a pure rate on clicks, it doesn’t give you any indication of the volume of purchases (unless you combine it with impressions and CTR).

It also can’t evaluate your ads performance in isolation because it includes the ability of your landing page (where people land after clicking) to convert.

CPI (Conversion per impression): CPI is the ratio of conversions to impressions.

    \[ CPI = \frac{conversions}{impressions} \]

It considers both clicks and conversions thus effectively taking into account both CTR and CVR.

It still needs you to use the total number of impressions in order to understand the volume of conversions. On the flip side, it balances the pros and cons of CTR and CVR.

When evaluating the performance of your ads, you’ll want to look at multiple of these metrics. For example, a high CTR might mean that your ad is able to attract a lot of attention but if this is combined with a low CVR, it suggests that something is not working. People are either not understanding what the ad is talking about or your landing page has a problem.

Similarly, fixating too much on CVR (or CPI) can lead you to sure conversions. This concentrates your ads on those customers who might buy your book regardless of the ads. On the other side, using only CTR can result in a waste of your budget.

In the next lesson, we will talk about measuring your returns. Stay tuned!

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