Popular Pricing Models For Online Advertising

This article lists some of the most popular ways to charge for your advertising space include: cost per click, cost per view, cost per lead, flat rate. Examples are provided for each type to illustrate the model and its benefits.

1. CPA (Cost Per Action, Cost Per Acquisition, Cost Per Lead, Cost Per Purchase)
The advertiser is charged every time a visitor makes a transaction or purchases a product. Publishers can either set a price for each conversion or let the advertisers choose their price. Advertisers like this model since it offers the highest quality and return on investment. Advertisers often control the pricing with this model. When a purchase or lead is generated, it's counted as one conversion and is reported to the advertiser. For an online diamond store (eg: BlueNile, Zale, etc.), a lead could earn $10 or more.

2. CPC (Cost per Click)
The advertiser is charged for each click on their ads. Click prices range from as low as 10 cents to more than $10 US dollars per click. Either publisher or advertiser can set the price. However, the concern for advertisers with this model is click frauds, which means click counters are inflated artificially to drive up the advertising cost. Publishers should use an ad server with click-fraud prevention technology to offer additional protection for your advertisers.

3. CPM (Cost Per Mille, i.e. Cost Per Thousand Impressions)
The advertiser is charged per thousand impressions. It is one of the more popular model among medium-to-large publishers. Advertisers do not have to worry about inflated clicks as in the CPC model. CPM is a very viable model when a publisher has more than 500,000 impressions per month. For smaller advertisers, number of impressions can be limited through different targeting criteria, including frequency capping, geographical targeting to prevent exceeding advertising budget and yet maintain a high quality traffic. The downside with the CPM model is there is no consideration for clicks, conversions and ultimately purchases. At a $5 CPM, 10000 visitors a month with an average of 5 view each will earn $250.

4. Flat Rate
The advertiser pays a fixed price to display ad for a period of time. This is popular among smaller publishers and advertisers because it is the simplest model with very predictable earning/expense. Publishers present their website metrics (page views, audience reports, CTRs) to the advertisers and name their advertising rates. Advertisers consider the pros and cons and make a decision to purchase an ad space for a period of time, often one calendar month at a time. Rates depend on the expected impressions, location of the ads, length of time. Since the earning is known, publishers can worry about other areas of their website. This model allows both publishers and advertisers to budget their fees and predict their profits. For example, an advertiser buys two months worth of advertising on a website with a one-time cost of $1000.

5. Hybrid or Combination of Multiple Models
With an advanced ad server, you can combine multiple pricing models to work for both sides, you and your advertisers. As an example, Flat and CPC means the publisher will have some guaranteed income (Flat) while earning extras on clicks (CPC). The pricing in this case could be arranged as follow: $500 per month plus $1 per click.

The advertiser is charged every time a visitor makes a transaction or purchases a product. This article lists some of the most popular ways to charge for your advertising space include: cost per click, cost per view, cost per lead, flat rate.

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