Online Advertising Models
CPC (Cost-Per-Click) / PPC (Pay-Per-Click)
An advertising model where an advertiser pays a publisher an agreed amount each time a user clicks on a link leading to the advertiser's site. In traditional direct marketing, the synonymous term is Cost Per Lead (CPL), a measure that reflects the cost of generating a qualified prospect. CPC is calculated by the formula:
CPC = Cost / Clicks
CPA (Cost-Per-Action) / CPS (Cost-Per-Sale) / Rev-Share / Commission
An advertising model where an advertiser pays a publisher a set dollar amount, or percentage of their revenue, when a user actually completes a pre-defined action such as: signing up for a newsletter, filling out a form or, in the case of comparison shopping, purchasing a product. An advertiser may pay $5 for every user that completes a form or 3% of the sale price for every user that purchases a product (“rev-share”). In many cases, an advertiser can choose the revenue percentage they are willing to pay… and this can be used to “rank” their listings in the same way a CPC bid would.
Rev Share % = (Cost / Revenue) x 100
CPM (Cost per thousand [Impressions])
Advertisers pay an agreed amount for the number of times their ad is seen by a consumer, regardless of the consumer's subsequent action. These ads are often sold in blocks of 1,000 ("M" is the Roman numeral for 1,000).
Sometimes used as a synonym for Pay-Per-Click, stressing to advertisers that they are only paying for ads that "perform" in delivering traffic. Similarly, also used as a synonym for Cost-Per-Action, where advertisers only pay when their business goal is met (probably more appropriate). Both are in contrast to CPM based ads, which cost money even if they don't generate a click.
Online Advertising Terms
A page view refers to the actual number of pages viewed by all visitors who come to a site during a specific time period.
The number of times a search listing or ad is displayed. This depends on the number of page views the publisher’s site gets.
Clicks / Click-throughs / Leads / Traffic
The number of users (or “leads”) that visit an advertiser’s site via an ad placement.
CTR (Click-through rate)
The percentage of your ad’s impressions that resulted in a clickthrough. You can calculate the conversion rate for a specific marketing campaign using this formula:
CTR = (Click-throughs / Impressions) x 100
Occurs when a visitor successfully completes an action on your site. This is the “A” in CPA. Conversion types vary from site to site depending on business goals. For example, a conversion can be a visitor signing up for your email newsletter, completing a "more information" form, filling out a survey, purchasing a product, providing an email address, or just visiting a specific page on your site. In the case of comparison shopping, a conversion is an “order” or “sale.”
The percentage of the clicks/leads to your site that result in a conversion, calculated by:
CR = (Conversions / Click-throughs) x 100
Revenue / Sales
The total dollar amount generated in product sales via a specific ad placement or campaign. Be aware that “sales” is often used interchangeably to represent either the raw number of orders that were placed or the dollar amount of revenue that those orders generated.
Cost / Spend / Ad Spend
The total dollar amount spent on a specific ad placement or campaign.
COS (Cost % of Sales) / CPR (Cost Per Revenue)
A simple calculation that displays the cost of an advertising campaign as a percentage of the total revenue that the campaign generated. For CPC & CPM campaigns, this can be thought of as the “effective revenue share”.
COS = Cost / Revenue
CPA (Cost per Acquisition) / CPO (Cost per Order)
The average dollar cost to acquire each conversion (order), calculated by:
CPA = Cost / Conversions
AOV (Average Order Value) / RPO (Revenue per Order)
The average dollar amount of revenue generated by each conversion (order), calculated by:
AOV = Revenue / Conversions
RPV (Revenue Per Visit) / Per Visit Value
The average amount of revenue “generated” by each visitor or lead, calculated by:
RPV = Revenue / Clickthroughs
COGS (Cost of Goods Sold)
Includes the direct costs attributable to the production & acquisition of a product. It does not include indirect fixed costs and overhead like office expenses, rent, administrative costs, etc. For a retailer, this usually represents the wholesale cost they paid for the product.
The difference between the Cost of Goods Sold and the Sale Price (Revenue) of an item. This is the amount of money a retailer makes on an item before deducting fixed overhead costs.
Gross Profit = Revenue − Cost of Goods Sold
Gross Profit Margin
The ratio of Gross Profit to Revenue. A high gross profit margin indicates that a business can make a reasonable profit on sales, as long as it keeps overhead costs in control. This percentage must be greater than the COS (Cost % of Sales) in order for the advertiser to consider an ad campaign “profitable”.
Gross Profit Margin = [ ( Gross Profit ) / Revenue ] x 100
ROAS (Return on Ad Spend)
A somewhat restrictive (and therefore less valuable) measurement often used to determine the success of a marketing campaign. ROAS is expressed as a percentage and is calculated by:
ROAS = [ (Revenue - Cost) / Cost ] x 100
For example, ROAS on a campaign that spent $2500 in click costs and generated $7500 in sales is calculated as follows:
[ ($7500 - $2500) / $2500 ] x 100 = 200%
ROI (Return on Investment)
A more inclusive measurement than ROAS often used to determine the success of a marketing campaign. ROI is expressed as a percentage and calculated by:
ROI = [ Gross Profit - Cost) / Cost ] x 100
ROI is usually a more broad calculation than ROAS and factors in the cost of the marketing campaign as well as the cost goods sold (gross profit). While it provides a more complete picture of a campaign’s profitability, it still does not account for fixed costs and overhead. Note that this metric is still used by many marketers in a simpler way, where cost includes only the fees of the marketing campaign. This calculation would be equivalent to the ROAS.
$1000 ad spend
$10,000 revenue generated
10% COS (PM must be greater)
$8,500 COGS (costs outside of ad spend:)
See also: http://www.adapt.com/resources/glossary