Click-through rate (CTR) measures the effectiveness of an online ad campaign for a website or email campaign through the number of people that clicked on a specific link. The purpose of this measurement is to see the viewers initial response to websites. By having an advertisement or link that directs them to the website, marketers can measure the number of visitors that initiated action in respect to the links. CTR is calculated by the number of click-throughs divided by impressions and is expressed as a percentage. The rate for banner ads have declined over time with an average rate of above 5% when they first appeared, 3% in the 1990's to .01-0.3% by 2011. Below are a few online advertising methods advertisers can adopt to measure the effectiveness of their ads.
Cost per click (CPC) is an internet advertising method where advertisers pay the publisher when the ad is clicked. For search engines, advertisers usually bid on keywords and phrases while content sites charge a fixed price per click compared to bidding. Display or 'banner' ads are shown on websites and search engines with related content that has been agreed to be shown. CPC are used to assess the effectiveness and profitability of internet marketing as the clicks measure attention and interest. It is the preferred metric if the main purpose of the ad is to generate clicks. It is calculated by the advertising cost divided by number of ads clicked.
Cost Per Action (CPA) is where an advertiser pays for each specified action such as, a purchase, form submission etc, linked to the advertisement. The specific action is chosen by the advertiser and only pays when the desired action has occurred. CPA offers a better control of return on investment by not indiscriminately spending on advertising that isn't driving the business. This is the reason why CPA is the preferred option when it comes to cost per click advertising as they can pay only when there are positive results.
Cost per impression (CPI) relates to the cost of online marketing where advertisers pay for every time their ad is displayed. It is the cost to offer potential customers one opportunity to see the ad. CPI is used to assess online advertising cost effectiveness and profitability and is able to be compared to other media. An impression is displaying an ad to a single user when visiting a web page. If the page contains multiple ads, one page view will result in an impression for each ad. Activities such as page refreshes do no count in order to prevent fraud and for accuracy purposes. This is calculated by advertising cost divided by number of impressions. The measurement is often expressed in Cost per Thousand Impressions (CPM) for more manageable numbers.
Cost per mille (CPM) is a measurement used in adverting for radio, television, print media, online for the purpose of showing an ad to one thousand viewers. It is used as a benchmark to calculate the relative cost of a campaign/ad message in a given medium. The purpose of the measurement is to compare costs of campaigns across different media. This is useful for advertisers trying to reach consumers in different locations and through various media as they are able to make comparisons between these media. It is calculated by dividing the cost of an ad placement by the number of impressions it makes, converted into thousands.
Cost per click has the advantage of paying for results in the form of interest, sign-ups, publicity and revenue. The disadvantage is that the cost of one click may equal tens of thousands impressions in a CPM campaign. Therefore the best way is to find a niche with a targeted audience to get the best results. In contrast, CPM can be used to have your ad seen by thousands for less than a dollar. However the disadvantages of this approach is that the ad may be seen by the same person multiple times and there also may be no result in the end with a very small CTR percentage coming from impressions made.