When investing in digital marketing, it’s critical to understand the different strategies in ad bidding: in other words, how to make your marketing budget work for you, reach your target audience, and convert leads to customers.
At Crimson Advantage, we classify five bidding sophistication levels, tiered by specificity and efficiency in reaching potential customers. Depending upon our clients’ digital marketing needs, each of these levels can work in different ways. Here’s a look inside our in-house bidding level playbook.
1. CPM
CPM directly translates to “cost per thousand impressions.” In other words, this is the cost of your content reaching a thousand people, regardless of if they’re in your target consumer group or not. This term is frequently used in TV, radio, and display ads, because there’s no way to fully know the details of who it’s reaching and how much they relate to your target audience.
CPM really says, “just get this in front of people.”
Regardless of if those people are interested or not, you simply want your message to reach them - and you’re paying for those eyeballs.
2. CPC
CPC means “cost per click,” also commonly referred to as “pay per click.” When your message is advertised on searches, display ads, and social media, cost-per-click means you will only pay the medium when someone clicks on your link and is led to your site or experience.
It doesn’t matter how many people your message reaches — only how many take the action to click to the website.
However, the data on percentage of clicks per impression (“clickthru rate” or “CTR”) can be very useful in tailoring future ads and choosing future media for the most marketing efficacy.
3. CPA
The next level up is CPA: “cost per acquisition,” which means you only pay if a customer is acquired in some way.
An acquisition could be classified as a sale, a subscription, or a form submission, depending on what is most important from a goal standpoint.
CPA doesn’t care about the number of clicks or the number of impressions, only the desired action someone takes.
4. ROI
ROI, or “return on investment,” is one of the more sophisticated levels of paid marketing. It essentially says, “I don’t care what it costs to acquire customers, I want X return on my $Y in spend.”
One way to think about this: Let’s say you want $12 in profit for every $4 you spend on advertising. So, you don’t care how much the advertising costs, as long as your profit return is 3x your investment. If it costs you $500 to acquire a customer that buys a $1,500 laptop — you’ve hit your goal!
This way, return on investment is of the highest priority in your digital marketing strategy.
5. Profitability
Finally, “profitability” is rarely used in ad bidding conversations. This is a bidding sophistication level usually harnessed at the upper level of paid marketing reporting for large corporations. To understand how viewing paid marketing from a profitability standpoint works, consider this scenario:
At your sneaker store, two pairs of sneakers sell for $50 each. Pair A costs $10 to make, and Pair B costs $35 to make.
With an ROI target of 3x return on investment, only $16.67 should be sent on a CPA (cost per acquisition) basis, since $50 (revenue) / 3 = $16.67
With the costs and revenue, the profit for selling Pair A is $40 whereas the profit for selling Pair B is only $15
So which pair should you focus more heavily on selling? ROI wouldn’t be able to provide a difference, but profitability would highlight how much smarter it is to focus on selling Pair A.
Of course ROI is great, but the idea with the profitability model is to continue reducing the ROI until it’s just above breakeven… because that way, more profit can be made. To achieve this, the CPA/ROI targets need to be pretty flexible.
Depending on your budget and target goals, each of these levels has something unique to offer.
