From CPM to CPC for direct-sold campaigns - some calculations

15 October 2019

In my day job, I work for a publisher and head up ad ops in one part of the business. Usually we sell online advertising campaigns using a CPM model - that is, advertisers pay a pre-agreed price per thousand impressions (CPM stands for Cost Per Mille).

One advertiser approached us to ask if we could work to a CPC model instead - that is, paying an agreed price per click (CPC stands for Cost Per Click. You may be familiar with this type of campaign being called PPC, or Pay Per Click). It's likely that the advertiser is familiar with this model from Google Ads.

A CPC/PPC model can be seen to reduce risk for the advertiser - because if no users interact with the adverts, the advertiser pays nothing. However it increases risk for the publisher - because if this happens, the publisher effectively gives away impressions.

So it is important to get the pricing right. In programmatic advertising, pricing is determined via auction and the bids that advertisers are willing to make. However here we are talking about a direct-sold campaign with a price agreed in advance between the two parties. We were happy to test out a CPC model, and it is certainly possible in Google Ad Manager (our ad serving platform) - but what to charge?

I started by looking at the average CPM for direct-sold campaigns on the site in question, sticking to run-of-site and excluding anything fancy like sponsorships. I won't use real figures here, but let's say for the sake of argument that this gave me a CPM of £10. So an advertiser, on average, pays £10 for each one thousand impressions. Ten thousand impressions would cost £100 (10 x £10), and so on.

I also looked at the average click-through rate, or CTR, for these campaigns. Google has quite a clear explanation of this concept:

CTR is the number of clicks that your ad receives divided by the number of times your ad is shown: clicks ÷ impressions = CTR. For example, if you had 5 clicks and 100 impressions, then your CTR would be 5%.

Now a CTR of 5% is extraordinarily high for a display ad. Again, for the sake of argument, let's say that the true figure on our site was more like 0.2%. This means that 0.2% of ad impressions, or one in five hundred, result in a click.

That maths here is pretty straightforward. On average, an advertiser pays £10 per thousand impressions and gets two clicks per thousand impressions. Therefore an advertiser pays £5 per click. A good starting point for CPC pricing would, based on this, be £5 per click.

Other considerations

However this isn't the only calculation to be made. There are other factors that might push the price up or down:

  • The advertiser's willingness to pay. They may be used to much lower CPCs on Google Ads and other PPC-based platforms, and baulk at a CPC of £5
  • That level of risk to the publisher. This can be mitigated to an extent by setting a maximum number of impressions for the campaign (in the same way that you might give a CPM-based campaign a fixed timeframe). However this then causes the potential for the campaign to under-deliver on clicks and fall short in terms of revenue.
  • The advertiser, campaign and the creative. If the advertising is less relevant to the user base, it will attract fewer clicks and therefore should command a higher CPC

My putative campaign is yet to happen - but in the meantime, do you have experience of a CPC/PPC model for direct-sold campaigns? I'd be interested to hear about your experiences.

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