Pricing Models for Display Advertising

Depending on the advertiser’s goals, there are typically two different pricing models to choose from, and depending on the platform used to run the ads, one or both of the pricing options are available:

1. Performance based pricing:

Under this model, the advertiser pays the publisher for ‘conversions’. These conversions could be:

• Clicks: the user clicks on an ad, which results in a visit to the associated landing page. The advertiser only pays if the click happens. We refer to the price paid as the ‘cost per click’ or CPC.

• Actions: the conversion could also be more than the click, the advertiser may want to see a certain ‘action’ - usually, the desired action is a sale or a subscription. Advertisers would then only pay when the desired action happens. The price of the ad is then calculated as a ‘cost per action’ or CPA.

You will find only a few publishers that accept CPA pricing. Usually, the publisher feels that they cannot guarantee the action that ultimately happens on the advertiser’s site. If the landing page is no good, the conversion may not happen at all, and the publisher does not want to be on the hook for that.

2. Impression Based Pricing:

A second pricing model is the very common impression based pricing. In that case, the advertiser buys impressions from the publisher, where every impression is considered an opportunity to display an ad to the user. The advertiser is charged on a Cost Per Thousand Impressions basis, also referred to as CPM or cost per mille.