Hey there I’m John Doherty and I’m the founder and CEO of Credo where we help great companies get introduced fast to the best pre-vetted digital marketing firms. And if you find this content helpful, I’d love for you to subscribe to this channel so that you’re notified about weekly videos moving forward.
Be sure to stay to the end where I’ll tell you where you can go to download our free guide to hiring a digital marketing firm.
Today we’re going to talk about the difference between CPC (Cost Per Click), CPM (Cost Per Mille/Thousand impressions), and CPL (Cost Per Lead). These are three digital advertising related terms that are important to understand so that you can optimize to the right one for your business.
If you’re watching this video, you probably have the following challenges:
- You’re advertising, but you’re not sure if you’re looking at the right metrics.
- Your agency is telling you everything looks good, but your conversion results are not showing the same thing.
- You’re not sure how to best invest your hard earned revenue into advertising to see the best results.
The opportunity ahead of you after watching this video is big.
- You’ll understand the difference between CPC, CPM, and CPL and when to use each;
- You’ll understand the tradeoffs of optimizing for each.
- You’ll be able to ask better questions to your agency.
Now, I’ve historically been an organic inbound marketer focusing on SEO and content marketing. They’re great ways to grow a business, but at some point you become too heavily dependent on one channel and need to layer on another.
When my business reached this point, I reached out to some agencies for help. We’ve been gradually spending more and more each month as we see results, but it’s been an interesting journey.
We look at a few metrics:
- How much are we spending and how many leads are we getting, and thus what’s our Cost Per Lead? This is the metric we look at because we have certain costs and need to keep our cost per lead below a certain point to be profitable based on conversion rates. Cost Per Lead is super important to us.
- Average Cost Per Click, because this number directly maps to our Cost Per Lead. If Cost Per Click gets out of control because of different variables, we’ll stop being able to hit our Cost Per Lead targets.
- Total leads, because this is what drives our business.
Your business is probably different. Maybe you’re an ecommerce business and what matters is direct and assisted revenue from advertising, which is influenced by average order value and cost per click matters a ton, and thus often it makes sense to optimize a lot of your advertising towards CPM so you get a broader reach.
The myth I am going to dispel today is that these are main numbers you should be advertising towards. A lot of marketing talking heads talk about these all the time, but as a business owner or marketing leader you know that these metrics don’t pay the bills.
It’s important that you understand each metric and when to use it. So here we go.
- CPC stands for Cost Per Click. This is a metric popularized by Google Ads (formerly Adwords) and is how much you pay per click to your website for a specific keyword. Because Google’s ads are an auction (where you don’t know what others are bidding), more competitive terms that likely lead to more revenue and better conversions are more expensive while longer tail keywords are less expensive.
- CPM stands for Cost Per Mille, or thousand, and is basically the amount an advertiser will pay for a thousand impressions. CPM is popular in display advertising and on Facebook. To calculate CPM, take the total amount spent on an ad campaign, divided by impressions, and then multiplied by 1,000. So if you spend $50 and get 10,000 impressions, your CPM is $5. CPM is useful when trying to reach a broader audience and not bidding per click.
- CPL is Cost Per Lead, which is most widely used in B2B where you’re generating leads. CPL is an important metric because it helps you understand how much you are paying per lead and from there you can determine if certain advertising activities are profitable or not, and with that information what to do about it. In non-B2B spaces the metric is CAC, or Customer Acquisition Cost. Basically, how much
- CPL and CAC are not leading metrics like CPC or CPM. CPC and CPM are metrics you can optimize to get your CPL or CAC to where you need it to be.
Reality is that it’s harder today than it has ever been to make paid advertising profitable online. CPCs are so high that it takes a large budget or a very profitable offering and rockstar conversion metrics to compete against the big players. But it is possible given enough time and testing to make it work, and that is possible when you know your numbers.
- Today we talked about the difference between CPC, CPM, and CPL.
- CPC is Cost Per Click and is most often used with Search Engine Marketing/Advertising specifically on Google and Bing.
- CPM is the amount you are willing to pay per thousand impressions on a website, and is popular in display advertising and on Facebook and especially when looking for a broader reach than Google or Bing advertising.
- CPL is Cost Per Lead and is a leading B2B metric. For non-B2B, you usually use CAC, or Customer Acquisition Cost.
If this was helpful to you, I invite you to download our free guide to hiring a digital marketing firm.
I’m John Doherty, founder and CEO of Credo. I’ll see you next time.