Confusing Internet Marketing Terms Demystified (Part 2) – Risk vs Reward of CPC vs CPM
This is continuation from Confusing Internet Marketing Terms Demystified (Part 1)
CPM – Risk vs Reward
So now you have the basics down..
What do you think display advertising networks with HUGE amounts of traffic want to sell you?
CPC or CPM?
Why? With CPC advertising, the risk is on THEM to optimize your ad (placement, when to show, how to show to, etc.).
In another words, they can give you BILLION impressions if your ad sucks, they make nothing.
Now with CPM, the risk is on YOU to optimize your ad.
You determine the placement, when to show, who to show to.
Their job is to follow your sales order. That’s it.
You pay them regardless.
CPM = Risk on you.
CPC = Risk on them.
This is why if you bid CPC on banner ad networks that offer both CPC and CPM (like Facebook), you can get lower CPC rates over time if your banner ad does better and better because now they can make money from more and more impressions.
Likewise, if your CTR tanks, guess what.. say good bye to your ad.
Now Facebook will move on and give chance to the next advertiser’s ad.
So this is why you have to upload not 1, not 2.. but hundreds, thousands, and even tens of thousands, of ads to keep your CTR high enough across your campaigns.
A lot of work? Heck yeah.
Remember, with CPC, the ad networks get paid for clicks.
There are these things called “botnets” (i.e. network of robots) that basically simulate clicks.
Of course, as an advertiser, you don’t want that crap.
You want people clicking on them so that PEOPLE can see your ads, not bots.
Is click fraud rampant?
I would say so:
To be fair, that chart above is probably more on the display networks where you can purchase on CPC basis…
Let me explain.
If you own a popular website, blog, etc, you can make good passive income by advertising other people’s stuff.
There are two ways to do it
1) Make money advertsing by finding your own advertisers:
– having a sales team, which means you need to hire, train, etc.
– taking credit card orders, which means you need credit card processing capability, merchant account, customer service, etc.
2) Working with a company that HAS all that.. including a set of customers that want to advertise you.
– all you have to do is embed some minimal code on your websites and voila, ads start showing up – start making money day 1
– in return , the ad network gets a CUT (i.e. revenue share) off what you make, anywhere between 10% to 50%.
Highway robbery? Yes. But remember.. no sales experience needed, no credit card processing, no technical experience… no NADA. All you have to provide is traffic.
So if an advertiser wants to advertise here on CPC basis, is it in the website owner’s financial interest to generate as many click (fraudulent or not) as possible?
And guess what… is the advertising network making more with each and every click (fraudulent or not)?
Do the ad networks turn a blind eye when this happens?
I hope not.. if they want happy, repeat customers to keep buying again and again.
Remember, with CPM, the ad networks get paid regardless of clicks.
So it is in THEIR best interest to show your ad as often as possible to as many people as possible.
In the old days , ad networks were insanely profitable (still now, but more insane back then).
They attracted every kind of unscrupulous idiots who want to make a quick buck.
Of course, with money and unethical people came advertising fraud.
These shady ad networks (or the publishers who carry the ad networks’ ads) would put your banner ads WHEREVER they felt like.. even on invisible parts of webpages where technically the banner ads were there.. but the visitors couldn’t see them (if you’r technically savvy, i am talking about iframes with 0px width and height, as well as hidden divs).
What does that do?
Artificially inflate the number of impressions.. and hence charging you for nothing.
Of course, they’re not complete dummies.. so they’re going to make it so blatant that you see your ROI turning effectively negative.
They’ll do it JUST so slightly enough to squeeze you.. but not to kill you.
Like leeches – they don’t kill the host, but take just enough that both of your can co-habitate.
Can you really detect this?
Well, if you’re buying hundreds of thousands of impressions, can you really tell if they’re squeezing you couple thousand here and there?
This is why you have to work with reputable companies (ideally a public company who have to report to SEC, FTC, shareholders, etc.).
Should you, as the advertiser, care about advertising fraud?
Unfortunately, your cost per lead, CPC, CPM, and all that good stuff gets impacted…
Can you fight it? Absolutely, but that’s beyond the scope of this post.
So, stay tuned!