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Purchase of teaser traffic using CPC and CPM. Which is more profitable when? What determines the cost per click (CPC) in contextual advertising? What is CPC in Direct?

CPC

Price per 1 click

CPC calculation formula

Many internet marketers are often faced with the need to calculate the cost per click various types advertising. What is CPC? This abbreviation in English sounds like (CPC) Cost Per Click - cost per click. What is this for? Calculating CPC will help us determine the cost per click, one of the important indicators that affects the effectiveness of the advertising source as a whole.

In fact, calculating the cost of a click is a very simple operation where it is enough to know the cost of placement promotional materials and the number of clicks made on them. To put it simply, the CPC calculation formula looks like this:

Now you should not have a question about how to calculate CPC. You need to understand why CPC is so important and why it is needed.

CPC calculation examples

In order to consolidate the result, you need to practice the calculations. You can check each of the calculations on the calculator above to make sure they are correct.

So, example No. 1: Let’s imagine that you placed a banner on the site for 6,500 rubles per month. Over the past month, you received 532 clicks from this banner to your site. Let's calculate the average cost per click for this banner:

CPC = 6,500 rubles / 532 clicks.
CPC = 12.22 rubles per click.

In total, using the CPC calculation formula, we determined that a click on this banner on average cost 12.22 rubles. Do you think this is a good price or not?

While you are thinking about this result, consider the second example: you posted an ad on the social network VKontakte. You pay 5.12 rubles per 1000 ad impressions. After 25,000 impressions, 14 people clicked on the ad. Let's calculate the cost of clicks on this ad:

As you can see, we do not have the final cost of placing this ad, but there are a number of indicators that will help us determine this. There is such a concept. We use it to determine the cost of advertising.

As you can see, the cost per click is even lower. But let's answer the following question:

CPC indicator - is it possible to focus on it?

The CPC indicator itself is a powerful evaluation tool. advertising campaigns. Clicks for 3, 7, 10 rubles - cheap, cool and wonderful. And everything would be fine, but what if these clicks are not your target audience, but random users who may not even be interested in your ads? It turns out that the price for a real, targeted click is growing. Thus, the CPC also increases because incorrect clicks are eliminated. What to do?

This is where the concept of “ ” or Action comes into play. Target actions are:

filling out the form feedback;
call;
order a call back;
purchase of goods;
visiting a specific page;
downloading price list, etc.

If clicks on your ads result in targeted actions, or conversions, then you have reached your target audience and your CPC directly affects your ROI. By doing it correctly, you can understand the real effectiveness of the advertising channel.

This is how we determined that cost per click affects the cost of an advertising campaign. The lower the CPC, the better, especially if those clicks result in conversions. Don't forget how to calculate CPC correctly - this will help you in your work.

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What is CTR?
What is CPM?
What is CPS?
What is PPC and what other performance indicators are there? affiliate programs?

The effectiveness of online advertising

Internet advertising is a very convenient type of advertising, as it allows you not only to concentrate your efforts on a specific target audience, but also measure the results of the money spent with great accuracy. After all, any advertiser wants to spend economically advertising budget and at the same time obtain maximum efficiency. In order to properly plan an online advertising campaign and track its effectiveness, it is important to remember the exact definitions and meanings of concepts such as CTR, CPM, CPC, etc. CPM, CPC, PPC are professional terms that denote pricing models, payment options for advertising on the Internet, CTR is an indicator of the effectiveness of advertising on the Internet.

What is CTR?

CTR (from the English click-through rate - click-through rate) is an indicator of the effectiveness of advertising on the Internet, defined as the ratio of the number of clicks on an advertisement/banner to the number of impressions, measured as a percentage.

Formula for calculating CTR:

CTR = number of clicks / number of impressions * 100%

CTR is an important indicator of the effectiveness of any advertising campaign. CTR can be applied to any hypertext link on the Internet, as long as impressions and clicks are taken into account.

CTR for dynamic banners on the RuNet usually ranges from 0.1% to 2%. With good media planning and effective targeting, the CTR value can be significantly higher and reach tens of percent. Contextual advertising can provide the highest CTR in search engines, when advertisers' ads are shown based on user search queries.

An important influence on the CTR (click-through rate) of an advertisement is its size, brightness, contrast and location on the web page. CTR is often considered a measure of the quality of an advertising unit or advertising platform. However, you need to keep in mind that for image-based, rather than “selling” advertising, the CTR value is much less significant than the number of users who will see it and the attention they will pay to it.

What is CPM?

CPM (from the English “Cost Per Millenium (Thousand)”) is a quantitative indicator indicating a fixed payment per thousand advertising impressions. In this case, each impression is taken into account and summarized, but there are no guarantees whether the user will click on the ad and follow the link to the advertiser’s website. When choosing a payment method for impressions, you should take into account the activity of the site’s audience. The more active users are, the more often the same ad is shown to them, therefore, money is spent faster, and the number of “viewers” is smaller. Some sites offer to limit the number of ad/banner impressions per user. It is also necessary to take into account the possibility of displaying advertising exclusively in front of the target audience, having previously studied the site traffic. If the platform site assumes the possibility of collecting data about visitors (for example, gender, age, profession, geography during registration), then the advertiser can set parameters according to which his advertising will be shown only to the most promising visitors from his point of view. This means that the budget will be spent more rationally.

What is CPS?

CPC (from the English “cost per click” - cost per click) is the cost of each click on an advertisement with the subsequent transition of the user to the advertiser’s website. The cost per click depends on many factors, such as the search word/phrase, the geographic location of the person performing the search, the time of day at which the search is performed, etc. It is important to consider that 90% of the ad unit is clicked on by truly interested users. However, when paying for each user transition to the site, there is always a risk of abuse of this opportunity (for example, empty “clicking” of the budget by competitors). Most platforms protect advertisers’ money from such cases (they block funds if the same user is too “interested” in advertising), but no one has yet been able to solve the problem of idle curiosity.

What is CPA?

CPA (from the English Cost Per Action - payment for action) is an indicator denoting a model of relationship with an advertiser, which provides for payment for advertising if the user makes a certain purchase or action. What are PPC, PPS, PPM and PPI? An affiliate program (affiliate program, partner program, partner) is a form of business cooperation between a seller and partners, in which partners attract users to the seller’s website and receive bonuses in the form of a percentage or fixed amount for some specified action (for example, visiting certain pages, filling out a form, purchasing a product).

Affiliate programs can be classified depending on what they pay money for. There are several schemes under which payments to participants can be made:

payment per sale (PPS) - a person who comes through an affiliate link pays for a certain product, the webmaster who attracted him receives a reward. This type of affiliate program includes programs for selling casual games, physical goods– books, flowers, contact lenses and virtual items – payment cards, hosting, media files.
payment per action (PPM) - money is transferred for performing a certain action, usually filling out registration forms, subscribing to a newsletter, etc. This type includes programs of dating sites, online games, exchange offices virtual currencies and others.
pay-per-click (PPC) is a system in which a certain number of transitions (clicks) to a website from a link placed in an advertisement is paid.
payment per impression (PPI) – all impressions of the page where the advertisement is placed are paid, regardless of whether the transition to the partner’s site was made or not.
multi-level marketing is a system in which payments are distributed over a hierarchical network of referrals and subscribers.

When planning to organize contextual or display advertising on the Internet, advertisers provide a certain budget for these companies. Consequently, they want to see where their money is being spent.
Even more important for an advertiser is to understand how best to invest in an advertising campaign so that it is as effective as possible, money is spent economically, and users are attracted to the site to the maximum.
To understand reports on completed advertising campaigns, as well as their planning, there are such parameters for measuring advertising strategies as CPM, CTR and CPC indicators.
CPM and CPC are professional terms that refer to pricing models and payment options for online advertising. And CTR is an indicator of the effectiveness of advertising on the Internet.

What is CPM?

CPM (“cost per thousand impression” or “cost per mile”) is an indicator in online advertising, indicating the price per 1000 impressions of a banner or

advertisements. That is, exactly how much money the advertiser will pay to the owner of the site where the banner or advertisement is supposed to be placed, so that the advertisement is shown to the target audience 1,000 times.
Features of the CPM indicator:

Each impression is taken into account and summarized. Whether the user wants to click on the ad and follow the link to the advertiser’s website is no guarantee.
When paying for impressions, clicks are free.
The ability to display advertising exclusively to the target audience, having previously studied the site’s traffic. If the site site assumes the possibility of collecting data about visitors (for example, gender, age, profession, geography during registration), then the employer can set parameters according to which his advertising will be shown only to the most promising visitors from his point of view. This means that the budget will be spent more rationally.
When choosing a payment method for impressions, you should take into account the activity of the audience on the donor site. The more active users are, the more often the same ad is shown to them, therefore, money is spent faster, and the number of “viewers” is smaller.

What is CPS?

CPC (“cost per click”) is the cost of each click on an advertisement along with the subsequent transition of the user to the advertiser’s website.
Features of the CPC indicator:

90% of the ad units are clicked by truly interested users. This means that paying for clicks allows you to get a more loyal audience.
When paying for each user transition to the site, there is always a risk of abuse of this opportunity (for example, empty “clicking” of the budget by competitors). Most donor platforms protect advertisers’ money from such cases (they block funds if the same user is too “interested” in advertising), but no one has yet been able to solve the problem of idle curiosity.
When paying per click, donor sites provide statistical information about each user who followed the advertising link. Thus, the advertiser has the opportunity to understand which audience is interested in his advertising. Of course, statistical data is limited only by the information that each user left about himself on the site.

What is CTR?

CTR (“click-through ratio” or “click through rate”) is the percentage of the total number of clicks by users of the donor site on advertisements, banners, teasers or text links, to the number of their impressions. The higher this indicator, the more promising the advertising platform.
CTR is an assessment of the effectiveness of the advertising campaign as a whole, each donor site and each advertisement separately.
Knowing the CTR of each individual advertising platform (what users do there more often - watch or click), you can calculate costs, draw up a preliminary advertising estimate and decide on a pricing model.

Links

This is a preliminary encyclopedic article on this topic. You can contribute to the development of the project by improving and expanding the text of the publication in accordance with the rules of the project. You can find the user manual

There are a huge variety of tools, counters and indicators to evaluate the effectiveness of advertising. To assess whether your advertising budget has been wasted, you first need to determine the goals of the advertising campaign. Then choose the tools. And finally evaluate the necessary marketing indicators. Stanislav Rybakov, founder and leader, helps us understand all this marketing agency Increase.

— Legendary American businessman and one of the founders modern advertising John Wanamaker noted back in the 19th century: “Half the money I spend on advertising is wasted. The only problem is that I don’t know what [half of the budget] is.”

Founder and head of the marketing agency Increase

Currently exists huge amount special tools for determining the effectiveness of advertising, the main thing is to know where to look for them, how to use them skillfully and which one to give preference to.

Setting priorities

Overloaded modern society advertising, we have created selective Internet users. Now they only pay attention to ads that have special value to them. Thus, in order to calculate whether our advertising is reaching the target audience, we first need to decide on our goals. Having knowledge of the characteristics of the audience and having built a goal-setting system, we will be able to select reliable metrics for assessing the effectiveness of advertising.

For most commercial projects, the interest is in increasing sales, but for some, such as media, an increase in the number of visits will be enough. In this case, we will use visit control metrics until we achieve the desired goals or find new ones.

Selecting tools

To competently analyze the effectiveness of online advertising and obtain statistical data, it is important to choose the optimal set of tools.

Below are possible and popular tools today used to collect and store various types of statistics on Internet pages:

Internal counters - located on the site itself, provide access to statistics in real time and guarantee the confidentiality of information. Such counters can be of your own design (to create you need to know a programming language, for example PHP), provided by a hosting platform or a separate service (CNStats)
External counters are special script programs that communicate with a specialized statistical server when a site page is loaded. Typically this is free services statistics ( , ). Some of them allow you to participate in ratings, but require that a picture with the service logo be placed on the website (LiveInternet, Rambler, Mail.ru, OpenStat)
Programs for analyzing Cookies - files containing dynamic information and remaining on the user’s computer (Cisco)
Programs for analyzing Log files that record events on a website (Semonitor, AlterWind Log Analyzer, AWStats)
Analysis systems that can comprehensively replace counters and log file analyzers (for example, such as “Site Statistics” from NetPromoter)
Conduct data statistics systems Internet advertising campaigns(“Yandex.Metrica”, AdTracker, AdsControl, etc.), as well as sets of modern web analytics tools (free Google Analytics or Microsoft AdCenter)

We study performance indicators

Marketing indicators for assessing advertising effectiveness. To determine them, you need to visit the advertiser’s account or carefully study the interface of the page being studied.

The most popular marketing indicators for assessing advertising effectiveness are CTR and CR. In fact, there is nothing in common between these two abbreviation terms except the letters C and R. Let’s take a closer look at what these and other marketing metrics for assessing advertising effectiveness are.

1. Visit control metrics. The first and simplest indicator is the number of visits directly, although it only shows the tip of the iceberg. If advertising is used correctly, the number of visits should be at a constant level, otherwise the campaign should be optimized.

It is also important to pay attention to the audience by determining who is visiting the page, where your visitors are from, whether there are new guests and whether there are those who have returned to you again. Information about how long users view your page can also be a signal to edit the site due to identified content problems.

A useful tool for evaluating effectiveness is a landing or sales page (landing page), which can be a separate page of an existing site or a specially created “one-page” site. The sales page becomes a kind of “hook” for the user, where he will either have to leave his contact information for further communication, or read more carefully individual goods at the request of the owner.

2. CTR (Click-Thru Rate) — click-through rate of advertising materials. CTR is a metric showing the effectiveness of advertising, expressed as a percentage of the number of clicks on an ad to the number of its appearances on the network. Naturally, the greater the number of impressions on the network, the greater the likelihood of increased visits. The CTR formula looks like this:

3.CR (Conversion Rate) — conversion rate. CR is rightfully considered the main indicator of the effectiveness of advertising campaigns, displaying the share of visitors who completed a targeted action after visiting the site through contextual advertising. Thus, if out of 100 visitors to a sales page, 10 people leave their phone number for feedback, the conversion rate will be 10%.

The conversion rate indicates the quality of advertising settings and the relevance of the services offered. If users become clients without any problems, advertising satisfies their needs, and the landing page is a means of solving their problems.

4. CPM (Cost Per Mille/Thousand) and CPC (Cost Per Click) — cost per thousand impressions and cost per transition. These are the simplest metrics for the cost of advertising campaigns.

In fact, CPM is the amount a client pays for an ad to appear online a thousand times. CPC is an average indicator, meaning that if during a certain period of time you received three transitions at a conditional price of 1.5, 2 and 2.5 rubles, then the average cost of the transition will be 2 rubles.

However, these indicators should not be considered as the main ones, since by setting yourself the goal of reducing the cost of transition, you may lose the quality and effectiveness of advertising as a whole.

We will consider additional indicators for determining the effectiveness of advertising below.

CPA (Cost Per Action or Cost Per Acquisition/Cost Per Lead/Cost Per Sale) — the cost of the target action. Calculated as the result of dividing the sum advertising expenses on the number of completed target actions (registration, subscription to the newsletter, trial period, etc.).

CPO (Cost Per Order) — order cost. This is one of the options for the CPA indicator - provided that the target action is a completed transaction. Calculation formula: the amount of advertising costs divided by the number of confirmed orders.

I would like to pay special attention social indicators (Social Metrics), which are determined by the number of mentions, for the most part, in social networks. Currently, a campaign can be considered truly unsuccessful if, upon learning about it, users do not share information on Facebook or Twitter, do not subscribe to accounts on one or another social platform, and are not active, leaving comments and likes.

Financial indicators of the effectiveness of online advertising. Their calculation is only possible if you have a customer relationship management (CRM) system and accounting data. As mentioned earlier, to work with this group of metrics you need to have information about the number of sales. The indicators presented below are qualitative and quantitative characteristics of advertising. In addition to them, there are simpler quantitative metrics for assessing the effectiveness of campaigns: the number of transactions, the number of attracted customers, the number of product units sold, etc.

1. ROI (Return On Investment) and ROMI (Return on Marketing Investment) — return on investment in advertising

What is the difference between these indicators? In fact, the difference between these concepts is small, since the term ROI is more general, while ROMI remains a more universal name for the metric. Return on investment in marketing is calculated using the same formula as ROI, but does not take into account financial and accounting costs, logistics costs - in other words, things that do not relate to the marketing area.

Thus, one of the main indicators of the effectiveness of an advertising campaign - return on investment in advertising - is calculated as a percentage according to the following principle:

2. LTV (Lifetime Value) — customer lifetime value , CAC (Customer Acquisition Cost) — cost of attracting a client

LTV is the most important financial indicator, which evaluates investments in advertising and determines the amount of income from the average client over the entire period of cooperation with the company. Let's focus on a simpler formula for estimating the value of a client over a certain period of time, where the total amount of the company's profit is divided by the number of clients.

CAC is calculated by dividing the amount of investment in advertising by the number of attracted customers. By tracking the dynamics of the indicator, you can judge the effectiveness of advertising. Growth indicates a decrease in efficiency, a decrease in the relevance of the product and an increase in the activity of competitors. The fall means an increase in advertising efficiency, respectively.

Particular importance is attached to the ratio of LTV to CAC, which determines the feasibility of using marketing tools for a long time. An example of such a calculation: if the lifetime value of a customer is 50 rubles, and the cost of acquisition is 20 rubles, the ratio of LTV and CAC is 2.5.

Graphic provided by an expert

If the calculation result is less than 3, the use of the marketing tool is considered ineffective in its long term. To improve the situation and solve problems that have arisen, it is necessary to review the settings of advertising campaigns, as well as pay attention to the quality of customer service.

Conclusions

When selecting a set of metrics to track and evaluate the effectiveness of advertising campaigns, it is always worth remembering that it is the entrepreneur who decides for himself, what results he considers positive. It is important to understand that effective advertising on the Internet should bring a significant return on investment. However, this does not mean that the results already achieved are maximum: any effectiveness can always be doubled.

One way to increase efficiency is to work with the delivery structure of the advertising unit. Another possibility is to reduce agency costs by eliminating the most expensive and ineffective means of attracting clients to the customer.

Competent, comprehensive work with content and tracking current performance indicators in the presence of clearly defined goals will undoubtedly lead to the desired results.

Mobile application analytics

Tutorial
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To make the right decisions in attracting traffic, it is important to understand how the processes of purchasing advertising in traffic sources work. Let's look at the main advertising purchasing models.

For traffic sources, selling advertising is a way to make money. The main task for advertising platforms is to maximize effective CPM (eCPM), income from every thousand ad impressions.

The number of ad impressions is limited, and the advertising platform strives to earn the maximum amount of money from advertising inventory. Advertising platform cannot sell all ad impressions. To understand how many impressions a site actually sells, they use the concept Fill Rate(the ratio of the actual number of impressions sold to the maximum possible).

Each site strives to sell all possible advertising impressions and receive a Fill Rate of 100%. If it does not sell all possible impressions, the site offers traffic cheaper - in order to earn at least something. The advertising network wants, on the one hand, to maximize CPM - revenue from every thousand impressions, but on the other hand, to sell all the thousands of impressions that it has in inventory.

Our own advertising platforms also monitor the quality of the content that we post so as not to cause negativity among the user. To assess the quality of content, an indicator is introduced Quality Score. Platforms sell advertising to those with a higher Quality Score.

MyTarget, Google AdWords And Facebook does this: in addition to the price you pay per thousand impressions, they also take into account the quality of the content. When choosing between two advertisers, platforms look not only at how much they will earn from you, but also at the number of users who will be satisfied advertising content, and take both factors into account together.

If the advertising platforms are not your own, but someone else’s, for example, Direct Traffic, or Mobile Display, it may not be the users who are dissatisfied, but the users of those publishers who work with this advertising network. Accordingly, the publisher is dissatisfied with how the advertising network works with it.

Ad buying models

Let us now return to advertising sales models. There are 4 models:

CPT - we buy a fixed period of time during which our banner will be displayed on the site;
CPM - we buy ad impressions;
CPC - we pay for clicks on an advertisement;
CPI/CPA – we pay for actions.

Let's talk about each model in more detail.

CPT

With this payment model, we buy out the entire fixed time of display of our banner on the advertising platform. We provide the site with a 100% Fill rate: it sells us all the impressions it has for a certain period of time. The site sells impressions to us cheaper, since we buy them in bulk. In this case, purchasing using the CPT model is cheaper than purchasing using the CPM model. It is more profitable for the advertiser to sell all impressions at once.

Working with CPT, we also run the risk that CPM or CPC will be expensive. We don’t know what kind of platform this is, how often the banner will be shown to users, whether they will get tired of it or not. Testing is difficult: you need to subscribe to certain volumes, and only after that we will receive the CPM and understand whether it is profitable or not profitable to place advertising on the site. The second disadvantage: it is not always possible to make changes quickly, and sometimes it is completely impossible. If we place a banner for a week, during the week we cannot make changes and test various hypotheses, which banner would work better or worse.

CPM

Another format for purchasing advertising is the CPM model, when we pay for impressions. The advantage of this advertising format is that our goals completely coincide with the goals of advertising platforms: traffic sources sell what they want to sell. Platforms don’t care what results impressions bring, whether they turn into clicks or are converted into orders. Traffic sources are guaranteed to receive the value we offer. Due to this, advertising is more stable and predictable. If this format pays off, it is easier to work with than CPC or CPI. You can always calculate the cost of a click that you get. Regardless of whether we buy by CPM or CPC, we can always take impressions, see how many clicks we received, divide one by the other, and calculate how much the click cost us.

There is a formula for eCPC (effective CPC): eCPC=CPM/CTR/10
Looking at the formula, we draw conclusions: the higher our CTR, the cheaper our CPC will be.

For example:
If we pay 1000 rubles for 1000 impressions, and the CTR of the banner is 1%, then clicks cost us 100 rubles.
If we pay the same 1000 rubles for 1000 impressions, and our CTR is 2%, then impressions already cost us 50 rubles.
Accordingly, at the same price for the number of impressions, we get clicks 2 times cheaper. Hence the conclusion: the higher the CTR of the banner, the cheaper we get clicks. It is more profitable for us to make those banners that have a higher CTR.

CPM works better on cheap traffic: when paying by CPC, there is a minimum rate that the site wants to receive per click. When traffic is cheap, having a high CTR, we can get clicks lower than this bar. We will not pass through CPC, since there is a minimum limit. Also, when working on CPC, it is worth remembering about such a concept as Frequency cap- frequency of displaying the banner to the same user. If we show the same banner to a user several times, CTR drops and CPC increases. And there are platforms that allow us to select a Frequency cap and, for example, show each banner only once to the user per day or per week. There are sites that do not allow this, and the cost of CPM depends on this.

CPC

The next ad buying model is CPC. Using this format, we pay for clicks, cost per click. When working with this advertising format, it is worth remembering that we pay for the clicks that the advertising network counts for us. There will always be a discrepancy between the clicks we actually receive and the clicks that the ad network counts. Some of the clicks fall off before our page loads, some of the clicks come from users that the advertising network did not count for us because they were not unique. When calculating cost per click and eCPM, you should use the clicks that you actually received, and not those that the advertising network shows you. The discrepancies can be large.

The good thing about the CPC format is that you pay for real actions and real users. If you buy a CPM format, you may never get a click, and you may not understand whether your advertising approach worked at all. You cannot test the offer itself. When we buy CPC, we are guaranteed to receive a click; in this regard, the format is convenient, because we can count and be guaranteed to receive impressions.

Accordingly, if a test requires 1000 clicks, we can buy 1000 clicks, we know how much we will pay per click, we can predict the budget for tests. This is difficult to do with CPM. Therefore, it is easier to start tests with the CPC format, and then, when we already see the CTR, we can calculate how much CPM actually costs us, and understand whether it is profitable for us to work according to CPM or CPC. When we pay for clicks, we can count in reverse side and understand how much each thousand impressions costs us. In this case, it is worth understanding that it is profitable for the site to sell impressions. We pay for clicks, and the site charges us for every thousand impressions, and the more effective CPM we get, the more profitable it is for the site to show our advertising than the advertising of another competitor. We recalculate eCPM using the following formula: eCPM=CPC*CTR*10
We draw conclusions: the higher our CTR, the higher the CPM.

If the cost per click is equal, it is more profitable for an advertising platform to display a banner with a high CTR. If there are two advertisers who pay 1 ruble per click, but one has a CTR of 1%, and the other has a 2%, then on a banner with a CTR of 2%, the advertising platform will earn 2 times more.

The opposite is also true: if there is a banner with a CTR of 2%, but we pay 50 kopecks per click, then it will be displayed in exactly the same way as a banner for which they pay 1 ruble per click, but it has a CTR of 1%.

By increasing CTR, we reduce the cost per click for ourselves and get the same number of impressions, or we get more impressions from the traffic source.

We can influence CTR: draw a creative that will have a higher CTR because users want to click on it. We can choose correct targeting, and show creative aimed at a specific audience. For example, for mothers from 25 to 35 years old or for men with the name Denis, and show a banner with “Denis” written on it. As a result, the CTR will be higher, we will get clicks cheaper, although we will pay the same amount for CPM. The CPM format on cheap traffic is often more expensive. There's usually some kind of threshold and you simply can't buy clicks for less than one cent. Although buying by CPM, with a high CTR of 10-15%, you get cheaper clicks.

When working in the CPM format, sites themselves try to maximize CTR. They will show the banner to users who are more likely to click on it. For the same reason: it’s more profitable for sites to show advertising banners to those users who click, since the sites will earn more in this case. On large traffic sources, Facebook, AdWords, MyTarget, special algorithms are activated that select the audience and show your banner to those users who are more likely to want to click on it.

This is an advantage of the CPC format over CPM: when we work on CPM, the site doesn’t care, we have already paid for advertising impressions. Accordingly, smart algorithms of advertising platforms will not work, although they are effective. For example, Facebook knows that we like and comment. If we comment and like posts about cars, then the advertiser, having shown an ad about cars to us, will receive a click, and Facebook will make money. We lose this algorithm if we buy advertising using the CPM format. If we compare the same ad by CPM and by CPC, the CTR drops because the platform does not help make the CTR high.

CPI

The latest ad buying model is the CPI format. Sometimes there is CPA when we pay for an action. In this case, the platform optimizes impressions and clicks on installations, it has data about users, and it can make predictions: show ads to users who are more likely to download the application.

This format usually looks attractive, but does not work so well in practice. The platform is not ready to take risks: there is a possibility that it will not be able to optimize impressions and clicks into installations with good conversion.

If you use mobile arbitrage methods: the right creatives and targeting, it will be cheaper to install by buying advertising in the CPC or CPM format.

But the CPI format still works if the site has certain tools. For example, Facebook has a look a like audience. If we provide data about our users: 5,000 people who made purchases in the last month in our app, Facebook will build an audience that is similar to these 5,000 people, which will allow us to provide a cheap CPI. In this case, the CPI format performs better than the CPC and CPM format.

Effective CPM/Effective CPC

Let's talk about effective CPM/effective CPC. When you buy advertising, you consider how much it costs to click and how much it costs to display. This should always be done. If you buy CPM, then calculate how much it costs per thousand impressions. If you buy CPC, then calculate how much a click costs. And compare these formats with each other. This allows you to make the right decisions and understand why you are now receiving more or less traffic, why your banner is not shown at a high bid.

Regardless of whether you buy clicks or impressions, always convert clicks into impressions and impressions into clicks. We know how much money we spent, how many impressions and clicks we received, we can always divide one by the other and understand how much the click cost and how much the impression cost. Even if we only paid for impressions or only for clicks. This knowledge helps you make the right decisions. As we have already discussed before: when the CTR increases, we get a cheaper click, and it is more profitable for the site to show our banner if we do not change the bid.

Advertising auction

When you place a bet, no matter what promotional model, remember that you will not necessarily pay the exact amount of money you bet. There is an advertising auction. There are many advertisers involved, and each bids per ad impression.

There is competition between you, and the final rate for an impression, click or install will depend on many indicators: the advertising auction model, the minimum allowable bids and the bids of competitors.

Classic, basic, on which most advertising networks and platforms are built - closed second price auction. Imagine all advertisers bidding for impressions. Each advertiser says how much he is willing to pay for a particular user, per impression, or per click. All these bets are collected and sorted: who is willing to pay more, who is willing to pay less. The advertiser who is willing to pay the highest bid wins. He receives the right to display an advertisement, or a click, but at the same time he does not pay his own rate, but pays the rate that was shown by the next advertiser, the second one.

If we have several places in an advertising auction, on a site, where to show an advertisement, then the first place is given to the first advertiser, he pays the price of the second advertiser, the second place is given to the second advertiser, and he pays the price of the third, etc. A closed second price auction is used on most advertising platforms.

Main advantages:

It is clear for advertisers: why and for what you pay so much.
It’s easy to enter a quality score and sort advertisers not only by bids, but, for example, by bids multiplied by the quality score. It is easy to take into account that the impression will be given not only to those who are willing to pay more, but also to those with better advertising quality.
It's easy to calculate your position in the auction. By going through the bids, you understand what bids are participating in the auction, what bid the second advertiser is placing, what bid the third advertiser is placing.

There are also negative points:

There are supports and auction overheating, when players start raising bids in order to increase your bid and knock you out of the auction.
Advertisers do not set “true prices.” For every advertiser, there is a true cost per click: how much they are willing to pay per click. A closed second-price auction does not force advertisers to bid higher, it forces them to bid lower. This is a plus for advertisers, a minus for the advertising platform, since it makes money less money from advertisers than she could earn.
Doesn't take into account that there are different advertising spaces. The site sells several banners in different positions. These banners will have different CTRs and advertisers will receive different numbers of clicks from different banners. The auction does not take this into account. As a result, the winner receives the first banner and pays the highest price for it, and the second participant receives the second banner and pays a lower price for it, but at the same time, the second banner gives the same number of impressions as the first. This is a disadvantage of the auction.

It often turns out that you don't need to win the auction, but you need to win second or third place.

Let's take the Yandex.Direct auction. The optimal strategy is to be in special. placement. When users enter a search query, advertising results are displayed - three places at the top. The biggest bet is for first place in the special. placement, but being in second or third place will get you about the same number of impressions, but cheaper.

VCG auction

Another thing about this auction is that the more clicks you get, the more you pay. This type of auction takes into account that different banners have different CTRs and give different numbers of clicks. The advertising platform receives more money from those advertisers who received more clicks, regardless of which slot they won.

The scheme of this auction is not clear to advertisers. If in the previous auction the advertiser paid the bid that was placed by the next one in line, this is not the case here. You pay for those clicks that competitors would not receive in the advertising auction if you were not there. This is difficult to understand and explain, and this is the main disadvantage of the auction.

This type of auction encourages advertisers to place genuine bids. If a click costs 3 rubles, it is profitable to bet exactly 3 rubles, you will get the optimal number of clicks at this rate, and the result will be maximum precisely with a bet of 3 rubles. With a lower bid, say 2 rubles, you will either receive less clicks or receive clicks of worse quality.

Facebook works on this model, Yandex began to work on this model. This model is now gaining more and more popularity. It is difficult to work with, but you need to understand that such an advertising auction exists.

Conclusion

We looked at advertising buying methods and discussed advertising auctions.

The next lesson will be the final one, in which we will talk about the tools that you will need for arbitrage: software, books, blogs. Let's discuss the expectations and reality that an arbitrageur faces in real life.

You can ask any questions about arbitration in the comments or in

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