Before we begin this article, let us first define our terms.
CPA is "Cost-per-Action" (also known as Cost-per-Acquisition, or alternatively referred to as PPA, Pay-per-Action).
CPC is "Cost-per-Click" (commonly referred to as PPC, Pay-per-Click)
CPM is "Cost-per-1000 Impressions" (with the M representing the Roman numeral for 1000; this term may also be referred to as CPI).
All three acronyms refer to price models of internet advertising. Banner ads, paid search or email blasts can be paid for by using these methods, and each one allows the advertiser different benefits for different prices - thus allowing the advertiser to be as cost-effective as possible.
CPA is where an advertiser will pay a publisher (web site owner, blogger etc.) a fee every time the placed advertisement generates a lead, a sale or some form of positive response pre-arranged between the two parties (Note: this model will operate similarly with email marketing). The advertiser, therefore, only pays money when the ad produces a form of conversion, which is perhaps the financially safest way to market online. It will first be pre-determined how many sales or leads must be generated before the ad stops running, so the advertiser knows exactly what their maximum spending will be. Overall, it is clear that the burden of risk falls firmly with the publisher, as they are by no means guaranteed a solid return. However, the cost for each action can be negotiated and, generally speaking, both parties are in a position to benefit financially should the ad prove enticing enough.
CPC is a more balanced approach and favors each party fairly equally. CPC operates on a click through basis, whereby the advertiser is only charged when a user clicks on the ad. Whether or not that same user provides information or creates business after the click is of no relevance, the click in itself is all that matters. This system, as with CPA, has a limit and a budget attached, such that the advertiser is not bankrupted overnight by excessive clicking. A potential drawback with this model is the presence of false clicking; for example where a competitor purposely clicks on an ad in order to waste the budget and undermine the ad's success. CPC is the model utilized by Google Ads, and they have made significant steps to prevent this happening.
CPM is at the opposite end of the spectrum from CPA, providing the publisher with a guaranteed fee. It is akin to paying for traditional print media in the sense that one identifies a price for their advert space and then the ad is published without further clause or criterion. Online, though, an impression is paid for in lots of one thousand apiece. An impression itself is a sole appearance of the ad on the web page. The ad of course will be withdrawn once the agreed impression total is reached. While seemingly an unattractive proposition to an advertiser compared with the above two approaches, CPM has proven very effective in generating brand awareness and is a popular choice for companies who are not yet in the market to promote or sell a specific product.
Tim Kennedy writes on behalf of inSegment, Boston's leader in search engine marketing, internet marketing, and the home of Boston SEO.