Basic understanding of CPC, CPM, CTR, CPA and methods of calculation

Basic understanding of CPC, CPM, CTR, CPA and methods of calculation

Basic understanding of CPC, CPM, CTR, CPA and the method of calculation. Image Courtesy –

If you have a YouTube channel or a website or a blog, you will generally want to use Google Adsense for monetizing. AdSense is a very good and reliable advertisement platform for earning online. But, there are many platforms on the web that serve advertisements and give good payments also. Some of them are, PropellerAds, Amazon Native Shopping Ads, AdClickMedia, Adversal, InfoLinks, RevContent etc.

Most of the people incorporate Google Adsense in their YouTube channel or website, but few of us have a thorough knowledge of the platform. It is important to have a sound knowledge of the basic methods used in Advertisement platforms like – CPM, CPC, CPA and CTR. Along with these methods, you should also know the efficiency and cost related to it.

In this article, I would like to discuss CPC, CPM, CPA and CTR and the system to calculate them.

Now, let me start with CPC. CPC is the abbreviation of ‘Cost Per Click’. It denotes how much money you will be paid against a click. It does not mean anything by impression. We know that the advertisers use to pay the publisher of a YouTube channel or a website when their advertisement is clicked. Cost per click rate depends on keywords. There are some highest paid keywords and some lowest paid keywords considered for advertisements. The keyword ‘Insurance’ is the highest paid keyword for an example.

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How to calculate CPC?

The following formula is used to calculate CPC

CPC = Total cost of the Advertiser / Number of clicks

The rate of cost per click can be $10 per click or 1 cent per click. The cost per click or CPC depends entirely on keywords.

In addition, CPC also depends on keyword competition among advertisers. The more the competition of the keyword, the higher its demand will be and similarly, the cost will also increase.

CPM is a basic method of calculation for Adsense. The full name of CPM ‘Cost Per Mille’ or Cost Per 1000 impressions. Here in CPM, ‘M’ represents the roman numerical for 1000. You are paid according to per 1000 impression shown on your website. It is a fixed method.

How much an advertiser will have to pay who is set in per 1000 method, is calculated from the CPM.

How to calculate CPM?

All the advertisers require keywords on which to show their advertisements. They extract the cost by biding on them. After that, the total number of impressions that your advertisement will get is divided by 1000 and the CPM is calculated. For example – if your advertisement does 20,000 impressions, then the impressions are divided by 1000. Thus it becomes 20000/1000 i.e. 20.

Now, the advertisers have already extracted the cost by doing the bidding. It is then divided by the number that we got from the example i.e. 20.

Example – If the total cost of an advertisement is $600, then dividing $600 by 20 you will get the CPM which is $30.

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What is CTR?

The full name of CTR is ‘Click-Through Rate’. CTR depends on both CPM and CPC. Just like CPM and CPC calculates the cost of advertising. Similarly, CTR calculates the effectiveness of any advertisement. In this way, we can say. That CTR tells the advertiser how many impressions your YouTube channel or website has or how many people have seen the advertisement and how many of them have clicked on the advertisement. So, the percentage rate is calculated from CTR in this way –how many people saw the advertisement and how many of them clicked on it.

Let me simplify it with an example:

If 1000 people saw the advertisement on your YouTube channel or website, but only 20 of them clicked on the advertisement, then the CTR will be like

 CTR = (20/1000) x 100 = 2%

How CTR is calculated?

The following formula is used to calculate CTR.

CTR = (Number of Clicks / Number of impressions) x 100

What is CPA?

CPA is an abbreviation of ‘Cost Per Action’. This is also called ‘Pay Per Action’ (PPA) and cost per conversion. CPA works like an affiliate marketing system. When your YouTube channel or website has real traffic, then this method is then more applicable. Because, when there is a real visitor, the advertisement that is being shown will be clicked by the visitor who needs it. And the visitor will also complete the offer after clicking the advertisement.

For example, if the advertisement is from a survey company and if a visitor clicks on this advertisement, then there is more probability that he will complete the survey. So in this way, a visitor clicks on the advertisement and completes the action that comes in the next step. This process is called CPA. Simultaneously, if someone clicks on an advertisement and buys a product is also calculated in CPA.

Submission of forms, sign up of newsletters, filling up of inquiry forms, filling up of registration forms and sale – all these processes are included in the CPA calculation method. The information given here is the basic concept of how Google Adsense works. Hope I have presented the total process in a simple way.

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