The 4 C's: CPM, CPI, CPA and CPC

The most common pricing model for banner ads is cost per thousand impressions (M is the Roman numeral for 1,000) or CPM. An impression is counted when a visitor views a page on which an ad is displayed, regardless of whether the visitor clicks on the ad.

Cost per impression, or CPI, is basically the same metric: Divide the CPM by 1,000 to get the cost per impression.

Cost per action (CPA) pricing is any formula in which advertisers pay not for viewership but when visitors perform a certain action in response to the ad, such as filling out a registration form, entering a contest or making a purchase. Advertisers often like this pricing model because they pay only for measurable results; they pay per customer action.

The strategy might be risky for you, though. A poorly designed ad might not generate any clicks, so you'd end up not making money because of your advertiser's poor design or copywriting abilities. Keep in mind, too, that the site being advertised on is usually expected to track customer actions; advertisers do not have access to the site's log files or to the information provided by the ad serving company, if there is one.

Cost per click (CPC), a form of CPA pricing, is a good pricing model for sites just starting out. Because there's less risk to the advertiser, this model is often more appealing to advertisers who haven't done business with you before. After your site gains momentum and begins to show more value in terms of traffic and number of advertisers, you can graduate to CPM or CPI pricing.

CPM and CPI pricing make the most sense when branding and/or customer awareness are among the ad's objectives, and when advertisers know they're reaching a highly qualified and desirable audience regardless of whether any immediate action is taken. After determining whether you'll base your rates on CPA, CPC, CPM or CPI, you'll take that information and develop your rate card and online media kit.

Decide on the minimum number of pages an advertiser can contract for and whether you'll allow discounts. Depending on site traffic, you might make the minimum number of impressions purchased from 100 to 10,000. Also, many popular sites offer volume, frequency and/or ad agency discounts. Agencies receive a discount to encourage repeat orders.
Flying the Banner

Before you begin selling ads, you'll need a mechanism for displaying banners on your site.

Banner ad rotation software, such as Open AdStream, lets you set up and maintain multiple ad rotations so all your advertisers receive equal treatment. The software can control how often and where a particular ad appears on your site, based on how much the advertiser paid. Prime page locations cost more.

Most of these software packages feature sophisticated tracking features that enable you to offer your advertisers complete ad performance reports at the end of a campaign.

Banner ad networks, such as DoubleClick or 24/7 Media work on your behalf to sell and serve your advertising inventory. Ad networks can simplify banner ad sales for those who lack the time or the expertise to handle administrative and sales functions necessary for a full-scale banner ad effort.