Welcome to Online Advertising Answers, where I share my answers to some of the most interesting questions about digital marketing that I’ve been asked on Quora.
This month’s questions:
- What is CPA (cost per action) marketing?
- Do you think that pay per click is a huge rip off?
- Why is my RPM earnings not included in my AdSense earnings?
Let’s get started...
To ask your own digital marketing questions, just go to our editor’s profile on Quora and ask away!
A: “Hi Muhamad,
CPA stands for Cost Per Action or Acquisition. It can be used to refer to how much you are paying for advertising (eg “I bought ads for a $50 CPA”) OR to work out how much each action actually cost you (eg “I worked out that the CPA on my campaign was actually £35).
It is not specifically a form of affiliate marketing despite what other people on here have said (although it can be used for affiliate marketing).
Buying ads on a CPA basis
When buying ads on a CPA basis, it means you only pay for advertising when the thing you want to happen, happens. This can mean that you only pay for ads when they lead to a sale, newsletter sign up, app download, video view, or whatever.
This can be highly advantageous for advertisers, but as it can be so much trouble for websites to run, it’s actually quite hard to get this form of advertising.
Note: For each of the above-listed examples, there is a specific advertising model. For newsletter sign-ups, you would call it CPL (cost per lead), for App Downloads – CPI (cost per install), for Video views – CPV (Cost per view). While these are all basically just types of CPA advertising, being more specific means you can get a price which is more directly related to what you are doing.
Calculating the CPA of your ad campaigns
If you advertise on a PPC basis (paying for clicks), or CPM basis (paying for ad views) you might still want to know how much it cost for each action you wanted. This can be useful to see if your advertising was worthwhile, as well as to work out which advertising campaign or placement worked the best.
You can do this by working out the CPA of all your ad campaigns and comparing which cost the least per action.
How to calculate CPA
Whether advertising on a CPA basis or working it out to compare advertising, the equation for CPA remains the same:
CPA = Ad Spend divided by the number of actions (often referred to as conversions)
[To make your life easier, you could also use this convenient CPA calculator here: CPA Calculator (Cost Per Acquisition)]
Top CPA Tips
If you are advertising on a CPA basis, then make sure your tracking is in place before you start. You don’t want to rely on someone else’s reports to say whether or not an action has taken place.
In fact, it’s best practise to make sure you are billed based on your own tracking, as discrepancies will occur in CPA advertising more than in any other sort of advertising. This means if you use someones else’s tracking, you might be paying for conversion which never happened (or which weren’t caused by the ad in question).
To counter this, make sure you share your reporting with whoever you are advertising with regularly. You want them to make as many conversions happen as possible after all, and so sharing your reporting can be vital to this.
If you want to find out more about CPA advertising, here is some further reading:
I hope this helps,
A: “Hi Yevgeniy,
No Pay Per Click advertising isn’t a rip-off – in that it isn’t a scam. It’s not exactly a good type of advertising model though.
That’s because the motivations of the advertiser and the websites (or ad networks) running the ads don’t line up. Advertisers want *good clicks*, but what they are actually paying for are *any clicks* – so that is what the websites (or ad networks) who are selling them provide.
You get what you pay for in digital marketing, as you do anywhere else. No-one is “ripping off” anyone.
Think of it this way – buying clicks is like ordering clothes online – they might fit you perfectly, they might not. You are purchasing an item and hoping that it’s going to work out great for you, but the seller is just selling what they have.
The difference is that when you are buying clicks, there is never a returns policy. This isn’t a scam – but it can lead to bad value for money.
Note: All the other answers to this question have focussed on how a professional will get better results than an amateur when running PPC ads. I don’t dispute that at all, but there is a problem at the centre of PPC advertising that this idea ignores.
How to work out your PPC
Before exploring further, let’s quickly get some basics down. Pay Per Click advertising means that an advertiser runs ads on a website or an ad network (such as Google Ads or Bing Ads), and only pays when someone clicks on an ad.
To work out your PPC, you can use this simple equation:
Pay Per Click = Amount Spent ÷ Total Measured Clicks
The Advantages of Pay Per Click Advertising
Pay Per Click advertising has been around almost as long as the world wide web, and there’s a lot of reasons for that.
- It’s cheap
- It’s easy to understand what you are getting
- Your ad gets shown for free (you only pay for clicks not views!)
- You are directly paying for performance
- It’s great for branding & driving traffic to a webpage
- Because it’s one of the oldest types of advertising, there are many people & companies who are very good at it (and so it’s easy to hire a pro)
- It’s quite simple to relate your ad spend to performance
- In Google search – when a search returns both a paid result and an organic result for the same site, people are far more likely to click on a link to that site than they would if either was shown alone. It’s a sort of 1+1=3 situation!
Having said all this…
PPC Is Not The Best Type of Advertising For Most People
Unless your goal is simply to get more people to visit a page, a click isn’t actually that valuable a thing in and of itself. In most cases, websites have goals past just getting people to visit their site – for example selling a product, or signing someone up to a newsletter etc.
To get PPC ads to work well for these scenarios you need to:
- Set up tracking properly, so you can tell if your ads are resulting in your goals
- Plan a campaign that will lead to those goals – eg running ads in the right places
- Optimise your campaign – eg run more ads in places that do well, and less in places that don’t.
Or you can take the simpler route and run CPA ads – ads which actually target your goals, and for which you only pay when a goal has been achieved. In almost all cases I would recommend doing this instead of running PPC ads.
However, if you have to run PPC ads for whatever reason, there are some things you need to know.
The Problems with PPC advertising
1) Not all clicks are created equal.
This is because the vast majority of clicks on ads are done by a small minority of people – people who will just click on anything. Again – this isn’t a scam – people are allowed to click on whatever they like on the internet, and some people just happily follow every link, ad, video etc they see on the internet.
These clicks are generally worthless though as the clickers don’t care about your ad, they’re just curious people.
2) Cheaper clicks are usually worse value
It’s natural to assume that you should optimise your campaign towards a lower cost per click. A lower CPC means you’ll be getting more clicks for your money after all.
However, due to the aforementioned mega-clickers, paying less often means simply paying for worse clicks. Again – this is not a scam. Clicks from people who click on anything are worth less money, so if you pay less money you’ll get a lower quality of click!
But how do websites and ad networks know where these low-quality clicks are? Simple – their big advertisers have done their homework and have scooped up all the best quality clicks. If you pay less than the big advertisers, then you’ll only get their leftovers. (Luckily big advertisers pay as little as possible, so this isn’t always that hard).
3) There is actually a lot of nuance to PPC advertising
While the premise is simple – buy clicks, get clicks – the practical application of running PPC ads can be quite involved. Planning where your ads go so they get good quality clicks is quite a big deal in and of itself. If you are buying from an ad agency, then this means choosing the right agency, if you are running them on Ad Platform like Google Ads, that means choosing the right options.
On top of this, you have to factor in whether or not your ads are actually good. You might buy the right ad space but run terrible ads (or vice versa). This means you have to constantly work on improving your ads and placements to find what works for you. This can be daunting for amateurs – which is why there is a whole industry of PPC professionals out there.
Solutions to PPC Problems
I know I’ve gone a bit off-topic at this point, but I’ve laid out some problems and it seems ridiculous for me not to also give you some simple solutions to them.
1) Always ask for a frequency cap
A frequency cap limits the number of times people see an individual ad in a given time frame (for example 3/24 means your ad will be shown three times at most to any individual in a 24 hour period).
For PPC ads (not on search engines but anywhere else) frequency caps are a must. They ensure your ads will be shown to far more people, and therefore increase the diversity of the people clicking on your ads. This generally improves results significantly.
A 1/24 frequency cap is best for PPC ads. If they need to loosen it, make sure the 1 stays the same – as in 1/12 or even 1/3. You don’t want your ad being shown multiple times in a row.
2) Optimise towards VfM, not CPC
The Value for Money equation is:
Value for Money = CTR ÷ CPC
3) Optimise your ads regularly – or don’t run PPC ads
Alternatively – just don’t run PPC ads. CPA (or Cost Per Results ads as they are sometimes known) are much simpler and generally more effective for most people. This isn’t because PPC is a rip-off, it’s just because it’s not for everyone!
I hope this helps,
A: “Hi Christian,
This is a common misunderstanding – RPM stands for Revenue Per Thousand and is not a distinct revenue stream, but actually just a way of measuring how much revenue you are getting per thousand page views (or ad views).
What does RPM mean in AdSense?
Page RPM means how much revenue you have earned per 1,000 page views, and can be calculated like this:
Page RPM = (Total Ad Revenue ÷ Page Views) x 1000
Impression RPM means how much revenue you have earned per 1,000 ad impressions (times the ad was loaded), and can be calculated like this:
Impression RPM = (Total Ad Revenue ÷ Ad Impressions) x 1000
Both types of RPM are used to help you compare how AdSense has performed for you over different time periods.
Imagine that in January your site had 7,145 page views, and then in February, you did some advertising and received 15,624 page views for the month. Good work imaginary you!
Your page views in February increased significantly, so you would expect your revenue to have increased. The question is – did your revenue increase as much as you were expecting?
This is important to know because it will help with financial planning, as well as to understand if your advertising is attracting the ‘right’ sort of users to your website. Good users will like your site, return often, and trust it enough to possibly click on ads. Bad users will visit once, do nothing and leave quickly. This second type of users are worth nothing to you.
While there are many ways to measure the quality of your users (Pages/Session for example), Page RPM is possibly the best way to measure their quality in AdSense.
To do this you can simply track your Page RPM over time by adding it to your AdSense chart. This will show you how much revenue you are getting irrespective of how many page views you are receiving, and will help you identify whether specific traffic sources are attracting better or worse users than your current ones.
I hope this helps,
I hope this all helps,