CPC, CPM or flat rate, which is best?

CPC, CPM or flat rate, which is best? One of the most common questions asked when considering how to advertise something, whether it be a blog, a product or service. Which method is best for your purpose? Who should you look to for direction? Also, which is best if you're trying to sell advertising on your site? I hope to help answer a few of these questions.

What is CPM/CPC/flat rate?
They are two metrics for how you pay for your

advertising. CPM = Cost Per Milli (cost per thousand) which translates to the price you pay for 1,000 impressions on your advert. CPC = cost per click, so essentially you only pay when people click your advert. Flat rate is when you buy a space on a website for a set period, whatever the traffic levels or CTR (click through rate).

Selling Advertising

This section covers those of you who wish to sell advertising on your website - so we need to look at what is going to generate the most income for you.

CPC
adsense For the majority of users CPC is the best option because you typically need monstrous levels of traffic to make CPM ads worth your while. CPC means you're paid every time someone clicks the ad - which means you need to get your placements right, which works out well for both you and the advertiser. Good placements = more clicks, this means more money for you and more traffic for them. You don't need massive figures to make CPC worth your while, just some decent positioning/blending.

CPM
This type is best for high traffic sites where the amount you get paid is proportional to your traffic, where you're paid for each thousand impressions on the ad. The logic behind this is that X number of people per thousand will click on the advert - but that's not your concern, you just need to keep the traffic coming and let them worry about the effectiveness of the advert. With the right site CPM can be very effective, but as mentioned previously, you need LOTS of traffic to make any real impact, so CPM isn't really for "modest" sites.

Flat rate
tla You can market the concept of flat-rate advertising any way you want. For you it's a nice income, paid by the week/month with no cost-to-performance criteria. So you get revenue whatever happens on your site that month - so if traffic goes down you get a good deal. Although, if traffic goes up - the buyer gets a good deal. It's a nice, ambiguous yet steady means of selling advertisement. Brokers such as Text-Link-Ads do flat rate ads.

Buying Ads

This section covers the decision from the perspective of the buyer, looking to run a campaign.

CPC
adwords By far the easiest to initiate and manage, CPC ads are best for the majority of users. You set a budget and you're only paying out when people click your advert - rather than paying per impression. This means that it doesn't matter what the CTR (click through rate) for the campaign is, because you're only paying out when someone clicks. I'll discuss later on where you can purchase these ads for.

Flat rate
If you're looking to buy flat-rate advertising then you're in for a gamble because you're not buying it on a performance basis. Unlike CPC where you're paying per click, flat rate means you're buying a slot for a period of time - whatever happens. The best forecast you can give is based on previous months for competitors in the same slot, so the price you pay is based on the traffic of previous months. If traffic is down the month you buy the ad, there's nothing you can do but settle for the raw end of the deal. However, if traffic is up - you'll be getting more for your money. Clearly the gamble is less on well-established sites that see very little fluctuation in traffic and it's these that you'll get the best forecast. Vendors such as Adbrite will grab this information for you - telling the average number of clicks ads in your chosen slot receive.

Think of flat rate advertising as playing the stock market. A well established site is going to give you what you paid for (there or there abouts) whereas up-and-coming sites could massively over-deliver, or they could fall flat on their rear-end. It's quite your decision but it's difficult to make big wins without paying the price.

Conclusions

CPM has very little place in the life of the average blogger/webmaster, unless you're lucky enough to be on the receiving end of thousands upon thousands of visitors a day then it's not worth your time.

CPC is much better for "normal" uses because you can easily manage your finances and get clever about things. CPC for sellers means ultra-targeted results and no payout if no one clicks it (besides a setup fee...). CPC for publishers means that you don't need massive traffic stats to make a difference to your bank account.

Flat rate is great in some instances but can be misleading (see my article on my experiment of advertising on Text-Link-Ads). To really get your money's worth you need to either deal directly with the site owner or get a placement on a site that suddenly hits big traffic levels.