CPM, CPC, and Small Business Options

TechCrunch writer, Josh Constine, posted an interesting article the other day titled ‘Yelp Ads Are Not a Rip-Off, You Pay to Seal the Deal.' His article was spurred by a VentureBeat piece by Rocky Agrawal titled ‘Yelp Advertising Is a Rip-Off for Small Advertisers.'

Constine argues that Yelp ads are not a rip-off. He also states that these ads can provide a nice ROI. Agrawal, on the other hand, believes that no small business can gain a decent return from Yelp ads, due to high prices. So, which theory is the correct one? Should you consider Yelp ads for your small business?

The Benefits of Yelp Ads

dynamic_corner_house CPMAs Constine states, most people who visit Yelp already know what they want. More importantly, these people are, generally, ready to buy. Yelp simply provides a myriad of retailer options. Businesses that advertise via Yelp can place an ad at the top of a Yelp search. These ads include direct links. This, in turn, puts businesses that advertise in direct consumer view.

But, Yelp ads aren't cheap. Yelp charges $600 Cost Per Thousand (CPM). To break this down further: for every 1,000 impressions an ad receives, that company has to pay $600. This pricing and model may not work for all small businesses, like a restaurant or mom and pop shop. The amount of return on a Yelp investment won't be worth the CPM cost. However, this doesn't apply to all small businesses.

The Nature of the Business Counts

It can come down to business types, not business size. A small local doctor's office may be able to bring in lots of repeat, and new, clients through a Yelp ad. Constine points out that this is not the case for a small restaurant, that may be successfully in reeling in a new customer, but that customer might not be a repeat customer.

Contractors, dentists, real estate agents — all of these small businesses can gain new and repeat business through Yelp ads. Sure, that CPM is high, but it could potentially be worth the high price in the long run. There's something else to consider here too.

CPM VS. CPC

CPM is not the same — and shouldn't be confused with — Cost Per Click (CPC). Companies like Yelp make money by simply displaying an advertisement. An “impression” simply means the number of page views.

Potential clients don't actually have to click on an ad in order to count towards that 1,000 CPM total. The fact that viewers are simply seeing an ad proves to be good exposure for any company, but it doesn't necessarily translate into link clicks.

CPC, on the other hand, refers to the number of clicks an ad gets. Do clicks automatically turn into paying clients? That remains to be seen — and largely depends on your website. Signing up with a CPC advertiser means that a small business owner won't have to pay for advertising unless someone actually clicks on an ad link. Which method is better?

Which Method to Choose

Companies like Yelp make money no matter what. Since Yelp bases all of its ads on a CPM format, revenue is generated when those 1,000 people simply view an ad. Companies that give businesses the option to choose CPC may not make any money. Facebook provides a good example of this.

When signing up for a Facebook ad, the social network provides either a CPM or CPC option. If an ad doesn't perform well and generate a few clicks, Facebook will boot the ad. Why? The social network won't gain any money from an un-clicked ad. Facebook prefers CPM ads. Why doesn't Yelp offer both options? Simply: Yelp isn't guaranteed profit with a CPC model. It really all comes down to personal preference, though.

Can A Small Business Gain A ROI On A CPM Ad?

The short answer here is: ‘yes.' Small businesses can gain a good ROI on a CPM ad if that business can attract and retain new clients. But, a CPC ad campaign might be a better idea for a business, like a restaurant, that can only afford to pay for advertising based on clicks…and not on page views.

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