What is CPM, CPA, CPC and CTR? Which one should I use for my ad campaign?

What Does CPM Mean?

CPM means Cost Per Thousand. (M is the Roman numeral for thousand - and so Cost Per Thousand).
It is the amount you will pay the ad-network or website publisher to show your ad and have it viewed 1 thousand times on their website or network.

Whether your ad is shown only once to each visitor (Unique Impressions) or any page impression - is something that you will have to work out with the ad-network or the website. CPM rates were once (pre yr 2000 bubble-burst era) as much as $75, but have now dropped to as little as $1 CPM.

What Does CPC Mean?

CPC means Cost Per Click. This is how much you would pay the ad-network or website every time a visitor clicks on your banner. CPC rates can be as high as $3 per click or as little as 5 cents per click. It depends on your product and your market - amongst other factors, the more competition there is - the higher you will probably end up paying as you compete with competitors.

What Does CPA Mean?

CPA means Cost Per Action. An Action could be any of the following - A visitor clicking on your banner coming to your site and filling up a simple enquiry form (CPR - Cost Per Registration) , or if the visitor makes a purchase (CPS - Cost Per sale). It may Even be a flat fee or a percentage commission of each sale made. Affiliate-Networks like commissionjunction , linkshare and clickbank have great software systems to help track all this and provide statistical information to online merchants and publishers on their network of sites.

What Does CTR Mean?

CTR is Click Through Rate. The percentage rate of people who click on your ad banner. If your banner ad is seen by 100 people and clicked by only 1 person - then it's CTR is 1% or .01

Similarly, if your ad banner is seen 100,000 times and in the same time period it is clicked 2000 times - then your banner CTR is 2% or .02 .

This is how we calculate CTR ...

(Number of Clicks / Number of impressions) x 100

Example, for above case it would be -

(2000 / 100,000) x 100 = .02

CPM, CPC or CPA ... what should I use for my ad campaign? 

Your choice will depend on various factors. Sometimes companies such as Pepsi, would just like to enforce their brand and be seen across many websites, without any need for the user to click on their banners. This is a brand hammering strategy, and a CPM deal would be preferred.

Apart from the above mass branding effort, the decision to go for a CPC, CPM or CPA ad becomes a calculated decision when you have a product that you want to sell on your website.

Would you pay the publisher for only visitors he sends you, or would you pay him for every thousand ads he displays for you? Or, would you pay him a commission on sales from visitors he sends you?

This can be very tricky. You may need to read a bit more on the subject before you make a decision. But trying a few different methods wont hurt. I hope this helps you on your way.