Advertising costs confuse most business owners. Someone charges someone else a price for a campaign and it’s impossible to know whether that’s a good deal or a ripoff. Another outlet wants a cost per click, and without any comparative external information, there’s no way to frame it. To make matters worse, the language is industry specific. CPM, CPC, CPA. It sounds like alphabet soup. All anyone wants to know is whether advertising is worth it for their business.
If one understands how much advertising costs and what it comes with, it becomes easier to strategize and stop hoping for the best.
How Advertising is Priced Differently
Different platforms have different means of pricing and each has separate implications for what you’re paying for.
CPM is cost per thousand impressions. This means you’re paying for how often your ad is seen regardless of if anyone does anything with it. You’re paying for eyeballs, not results.
CPC is cost per click. You pay for how many times someone clicks on your ad whether that person goes on to buy or immediately backs out.
CPA is cost per action or acquisition. You pay when someone does a thing—buys something or fills something out.
Each are more effective for certain goals and situations than others; it’s crucial to understand which fits better in addition to what each actually costs.
What Paying for Impressions Means
When you pay for impressions, you’re paying for visibility and awareness. The ad runs, people see it and that’s what you’re buying. The next step is an entirely different question.
This makes sense with brand awareness campaigns whereby the goal is simply to get a name in front of people over and over again. With popunder cpm, businesses pay for how often it’s seen and how often it’s gotten in front of targeted audiences, with higher quality traffic resulting in more conversions.
The issue here is that there’s no guarantee that an impression is actually an impression. Someone could scroll too fast or it could load in such a way that someone never sees it at all. It’s important to work with networks that have high-quality traffic to combat this, ensuring that they target people who are genuinely interested in your services.
The Click and What It Actually Costs
Paying per click seems like a straightforward solution. You don’t pay unless someone puts their money where their mouth is and clicks on your ad.
But paying per click has a range of costs based upon competition and targeting.
In competitive arenas clicks are more expensive. In less competitive arenas, they are cheaper. The problem lies in whether those clicks are worth it. If it’s a cheap click but no one buys it’s expensive. If it’s an expensive click but tons of people buy, it’s cheap.
This situation involves math where one ideally wants to know conversion rates beforehand so that one doesn’t suffer unnecessarily when significant budget lines are cut to do so. If most clicks never become customers it gets expensive quickly.
Paying Per Action and the Risk vs Reward
Why pay for something that’s not guaranteed? Paying per action sounds ideal. The catch is that paying per action usually has a higher pricing per action than implied by other systems.
When an outlet assumes risk but only pays for results, that risk comes baked into the price. Thus, while you’re technically not paying for impressions or clicks that go nowhere, you’re paying more heavily for actions that do happen.
This makes sense with testing when testing is expensive or budgets are limited. Risk gets taken away from the seller but typically means higher costs per customer than what would be determined through optimized efforts based upon impression or click-based efforts.
When New Advertisers Forget the Hidden Costs
When someone quotes a price to someone else, it’s rarely what the final price will be. There’s the creation of the ads themselves—time, money spent writing copy and designing visuals to set targeting options/setup—and that’s all before anyone spends their first dollar on advertising for potential ad spend.
Then there’s the landing page or whatever post-click experience happens. If it’s a broken website or convoluted offer the cost remains the same with no benefit; however, spending on advertising without also spending on viable solutions to convert traffic means transaction costs survive as sunk costs in hindsight.
Most times testing costs money, too. Rarely does anyone hit the ground running from day one with the right ad solution; instead, they learn as they go by trying out new efforts—and that comes at the cost of certain budget dollars instead of immediate results.
What New Advertiser Results Should Look Like
Too many new advertisers have unrealistic expectations after spending money on ads; they expect immediate results in flowing new customers.
The reality is those results are often tempered, especially at first.
A reasonable expectation suggests to learn what works by breaking even with initial investment; if they have customer value equaling the ad spend value directed toward them, that’s not a loss but instead market research that paid for itself. Results improve with time through testing and optimization, however.
Successful businesses that advertise think long term; they realize initial campaigns are about testing for other avenues so they value early feedback when it scales down the line because they’ve discovered what works.
Whether Advertising Makes Sense to Begin With
Not all businesses need to advertise; some get by just fine through referrals, organic search or local presence; others only find value through advertising when there’s a clear pathway connecting ad spend to customer value indicating positive return on investment.
Most importantly, businesses need to know their customer lifetime value, their conversion rates and profit margins before spending substantially; unless they know these numbers, they’ll have no way of knowing whether advertising costs are cost effective through anything beyond anecdotal perspective.
It’s not about what arbitrary numbers make sense but rather contextually what makes sense overall with specific businesses at specific times. A high customer acquisition cost may seem steep but might work if that customer is worth significantly more; conversely, a low customer acquisition cost may not work if margin of error runs too tight.
How to Make Sense of it All
Advertising costs however much it costs based upon competitive targeting and quality of traffic; the real question isn’t about whether someone else’s number seems high or low but whether it seems worth it for reliable results overall relative to whatever business in question.
Understanding pricing structures, expectations and standards allows one to find comfort in advertising as opposed to gambling efforts based upon hope.
For some businesses, it will turn into their best growth channel; for others, they’ll find their money goes further elsewhere but either way—both conclusions are sound as long as they’re based upon data instead of uncertainty about what was being purchased in the first place.
Businesses who win with advertising are those who understand what they’re purchasing beforehand.