Below is BlitzLocal’s glossary of Internet marketing terms.
PPC – Pay Per Click. Typically thought of as paying per click on traditional search engines such as Google, Bing, and Yahoo!. However, this model has also extended to platforms such as Facebook, which allow you to set a price per click. Most of the platforms that have traditionally been pay per impression (CPM), have shifted to PPC, since it provides greater accountability for an advertiser’s budget. A model where you pay only for clicks penalizes poor traffic sources that may have a lot of impressions, but not enough relevancy to drive clicks.
CPC – Cost Per Click. Your cost per click is what you actually pay for each click. It’s usually significantly less than your maximum bid. The more competitive the keyword auction, the closer to your maximum bid you will actually pay. For non-competitive terms (where you are the only bidder) or where you have a distinctive advantage in Quality Score over other advertisers bidding on that keyword, your actual CPC may be a fraction of your bid. This most commonly occurs on branded terms.
ECPC– Effective CPC. Also sometimes shortened to EPC (Earnings Per Click). In an ecommerce or lead gen scenario, the advertiser assigns a value to a conversion event, then calculates what the revenue per click is. For example, if a sale is worth $30 and 1 in 10 clicks results in a sale, then the ECPC is $3. Advertisers maximize profits when the ECPC is well above the CPC. In this example, the advertiser may have a CPC of $2 and a ECPC of $3, thereby creating a margin of $1 per click.
LTR– LifeTime Revenue. For subscription-based models, as well as some product models that have a recurring component to them, the LTR is the sum of expected revenue over a single customer’s lifetime. For example, if a dating site collects $30 per user per month– and users typically stay for 3 months– then the LTR is $90. LTR is typically affected more heavily by retention rates than monthly revenue or per-item pricing.
CPA– Cost Per Acquisition. The CPA is what it actually costs you to create a conversion. If you are paying $2 per click and 1 in 10 clicks converts, then your CPA is $20 per lead. The CPA target is determined based on the acceptable marketing cost to still profitably acquire a new customer or conversion. A number of “performance” networks and advertisers will pay publishers based on a CPA, which is a bounty. So if an advertiser such as Netflix pays affiliates $25 per sale– and affiliate who drives 10 conversions will earn $250. Her actual cost to drive those conversions may be significantly higher or lower. A CPA model places nearly all risk on the publisher, while a CPM model places nearly all risk on the advertiser. a CPC model such as AdWords is highly popular because it shares risk– the publisher takes the CTR risk, while the advertiser faces the conversion rate risk.
CTR — Click Through Rate. The CTR is clicks divided by impressions. A typical CTR for keyword search campaigns may be as high as 1%, while a display (banner advertising or content network) campaign may be typically 0.02%. Advertisers will rotate their ads to maximize their CTR, as certain “calls to action” and attention getting creatives can significantly increase CTR. For advertisers who pay on a CPM basis, managing CTR risk is critical, since it determines the effective cost per click. Double the CTR and your CPC falls in half, if you’re paying the same CPM. For PPC advertisers, the CTR is the most important component influencing their Quality Score.
CR– Conversion Rate. Usually implied to mean conversions divided by clicks, but sometimes meant to be sales to leads. When talking about conversion rate, always make clear what two numbers you are dividing. For example, you might have a 10% click to call conversion rate. CR is most commonly used in performing landing page optimization. A low conversion rate is typically caused by a landing page that is not convincing, but can also be a result of buying irrelevant traffic. If the traffic is irrelevant, no amount of landing page optimization will create conversions. Usually, CTR and CR are inversely related. The more “aggressive” the ad copy, the higher the CTR, but the lower the conversion rate.
Impressions. A seemingly simple metric– the number of times an ad is shown. However, you may be showing multiple ads on one page. For example, you might have 3 ads per page, which creates 3 impressions per pageload, but only 1 page-level impression per pageview. A “heavy” page that takes a long time to load may technically register an impression, but not necessarily load fast enough for a user to see it. Ads that are “below the fold” (requiring scrolling down) may count impressions, but also not result in a human being seeing it. An impression on a large, prominent ad unit will be worth more than an impression on a tiny footer ad– so not all impressions can be equally compared. Frequency capping is one of the most important controls on impression-based campaigns (buying on a CPM-basis).
Frequency capping. Typically defined as the number of times you will show an ad to a user in a given period. For example, a 3/24 frequency cap means that you’ll not show an ad more than 3 times to a particular user in a 24 hour period. Sites that have a high number of pageviews per user need frequency capping in place to prevent wasting of inventory. For example, dating and social network sites often have users who consume 50+ pages per session. Frequency capping prevents a particular user from consuming 50 of the same ad during their visit– and can allow 17 different advertisers to show their ads (3×17= 51). Frequency capping is a relatively new feature in Google AdWords, but doesn’t yet exist in Facebook.
eCPM– Earnings per Thousand Impressions. M is Latin for thousand. This is the most important metric for a publisher– a publisher is the owner of a website who is trying to generate the most revenue on his inventory. If he sells his inventory to advertisers on a CPM-basis, then he faces no earnings risk, since his CPM is automatically equal to his eCPM. If he’s selling on a CPC basis, then he is subject to CTR risk. In other words, if two advertisers are both bidding $1 per click, but Advertiser A has twice the CTR of Advertiser B, then Advertiser A is earning the publisher twice the eCPM of Advertiser B. Sophisticated publishers and ad networks break down eCPM into CTR x EPC/10. So if an advertiser has a 1% CTR and a 10 cent EPC, then the publisher is earning at a $1 eCPM. Click arbitrage models extract the greatest difference in CPM and eCPM by managing against the relationships between CTR and EPC at the most granular level of traffic.
