How Online Advertising Works

Knowing how online advertising works is a fundamental requirement for anyone with an online business.

Online advertisements are what allows a lot of the media that we consume today to be produced. With more money flowing into the online space, it is important for to have an understanding of the ways that media is being monetized and how online advertising is evolving.

This article will be looking at advertising more from a publisher’s perspective. If you are a content creator with intentions to make a genuine living out of your online platform you need to familiarise yourself with the different advertising models.

Online Advertising Can Work For You

Even it is not your primary earning strategy, online advertisements can constitute a substantial addition to revenue that you are already making, just by tweaking your content a bit.

Online advertisements as most of us know them are what is referred to as Performance-based Advertising. It refers to advertising where an advertiser pays for results that can be measured.

There are four common pricing models, namely CPM, CPC, CPL and CPA.

Cost Per Mile (CPM)

Cost Per Mile (CPM) advertisements have existed the longest of all types and are the most commonly seen by users. Also referred to as Cost Per Impression, Cost Per Mile ads are priced based on the number of times that an advertisement is displayed. CPI is the pricing for every time an ad is displayed, and CPM is the same but for every 1000 impressions.

CMP is the most common pricing model with the most popular programme for these advertisements being Google AdSense. You create ad space on your website and based on collected data, Google serves advertisements that it deems relevant to the readers.

While many could make revenue from CPM in past years, these days, unless you have a huge number of views, (in the tens of thousands or more a month), earnings from this model are deemed negligent.

Additional criticisms are that it does not benefit advertisers as they still have to pay whether they reap benefit or not. In other words, they pay for nothing. As a result, a lot of advertisers are moving away from this model to the others mentioned below.

These ads are also notorious because in a bit to maximise earning, publishers often flood their pages with these types of ads to the point where it negatively affects the user’s experience.

Cost Per Click (CPC)

Cost Per Click is an improvement to the CPM model where advertisers pay for when a user clicks on an ad. It is commonly used in sponsored posts on social media posts, and in website display ads in content that is usually relevant to the ad. They do, however, cost a fair amount more than CPM and the cost of keywords (which the ads target) keeps rising.

They can also hamper user experience, with some publishers putting ads in places that will lead users to click on the ads unintentional, such as near the ‘close’ button of an invasive pop up banner. This leads to bad leads who are still no benefit to the advertiser.

Cost Per Lead (CPA)

In the Cost Per Lead model, advertisers only pay for a qualified lead, i.e. someone who is interested in what is being advertised. The user must complete a qualification step such as filling out a form with basic personal information or even just submitting an email address.

There is the model that is advertiser-friendly. The user is usually sent to the advertiser’s platform to complete the qualification, delivering leads that are usually of high quality.

An incentive to publishers with this model is the prices that they pay for a lead. Many pay between R10 and R20 for leads. If for a website with high volumes of traffic, this can translate into a lot of commission revenue.

Cost Per Acquisition (CPA)

Cost Per Action or Cost Per Acquisition is favourite among internet marketers and publishers. It is the pricing model where the publisher gets paid when a user they refer completes a specific action. It is more involved than CPL and requires an even more specific action before the advertiser pays.

CPA is very similar to affiliate marketing in that the publisher is only paid when a website visitor clicks through an ad and completes the acquisition process on the advertiser’s site. The difference is that it does not always necessitate a purchase. The action can be signing up for a trial, installing software onto your device.

Reasons that marketers love CPA is because it pays a substantially larger fee than CPM and CPA and is also can still be an easy sell with products that are enticing. CPA ads can also be integrated seamlessly into published content and does not get messy as CPC ads do, which preserves a pleasant user experience.

Which one is best?

Each of the pricing models have their suitable applications. In recent times, CPM is falling out of favour with both publishers and advertisers as both parties see relatively little return.

Advertisers run the risk of paying money without getting results. For publishers, a website getting 500 visitors a day can generate less than $1 from Google AdSense. To make $100 from CPM, a publisher’s content would have to gain tens of thousands of views. The ads are also not popular with readers because some publishers flood their content with ads at the cost of the user experience.

The models that require more specific actions require a bit more work but make up for it with sufficient compensation. The benefit of CPL and CPA is that they provide the maximum benefit to the Advertiser, Publisher and the consumer.

Choose The Right One For You

To compare each different type based on merits, recommendations lead more towards options that are higher in the value chain, which is CPA or CPL. However, to be successful with CPA you have to have good content that compels your audience to carry out the required action. Without that, CPM could be more suitable since does not require specific action.

Each has its own effective use cases and you will have to make an assessment and determine which one best suits the platform that you are marketing on.






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