cost per engagement (CPE)

What is cost per engagement (CPE)?

Cost per engagement (CPE) is an advertising pricing model in which digital marketing teams and advertisers only pay for ads when users interact with their campaign in some way.

The term engagement includes any interaction a consumer has with the advertisement, such as pausing or muting a video, playing a mini-game, taking a survey, signing up for a free trial, reviewing a product or sharing a post on social media. Advertisers can choose between models that charge for every engagement -- which could include simply closing the ad -- or for meaningful engagements -- such as clicking through to the website and positively engaging with the ad.

Cost per engagement advertising

The CPE pricing model allows marketing teams to ensure they receive something in return for the money they spend on ad campaigns. Cost per engagement advertising is a low-risk way of ensuring ad costs produce results since both outcomes are beneficial to advertisers. Either the user engages with the ad, making the ad a success, or the user ignores the ad and the company does not have to pay.

For example, a marketing team might build an ad that displays four different lamps from a home décor website that the audience can view by swiping through the images. The campaign is booked with a $0.35 CPE for 200,000 engagements. In the end, the total amount owed is set at $70,000, assuming all engagements are used.

Cost per engagement has become an increasingly popular pricing model among advertisers and marketing teams in response to the expanding use of social media. Some examples of engagements in social media include:

• Shares of a post
• Company page likes
• Link clicks
• Likes of a post
• Photo views
• Comments on posts

Benefits of cost per engagement advertising

The benefits of utilizing a CPE pricing model include:

• Improved flexibility and creativity. Cost per engagement advertising increases creative output by helping advertisers become more attuned to market trends.
• Engagement is a general term. Since the term engagement can mean a multitude of things, advertisers can choose to define it in their own ways, also making it easier to adapt to evolving advertising trends and platforms.
• Increased engagement. Every interaction raises brand awareness, as well as the chances of the consumer reaching the campaign's end goal; whether that be buying products off the company's website, subscribing to a service or installing an app.
• Improved budgeting. CPE advertising guarantees that marketing teams don't waste their entire budget on useless ads. Companies will only pay for ads that have produced some sort of proven, meaningful interaction. If customers don't engage, then advertisers don't pay, and their budget is preserved.

How CPE is calculated

Cost per engagement is calculated by dividing the total cost spent by the total measured engagements. Therefore:

CPE = total cost spent / total measured engagements

In this situation, the total cost spent refers to the amount of money that was used to create the ads and attain the engagements. Total measured engagements refers to the sum of interactions generated by the ad.

Cost per engagement versus cost per click

Cost per click (CPC) is another advertising pricing model in which the company only pays when a customer clicks on their ad. Similarly, cost per mille (CPM), also called cost per thousand, refers to how much an advertiser pays for one thousand views or clicks on an advertisement.

In contrast, cost per engagement advertising makes companies pay for every engagement -- this includes, but is not limited to, clicks. As a result, the CPE will almost always be equal to or lower than the CPC because all clicks count as engagements, but all engagements do not count as clicks.

For example, advertisers release an ad in the form of a video on Facebook. A user may watch the video and click on it to find the website. It is also possible that a user will hit the like button on the Facebook post. This counts as two engagements -- the like and the click to the website -- but only one click -- the click through to the website. As a result, the CPC will be half as much as the CPE.

Other pricing models

Cost per lead (CPL) and cost per action (CPA) are two additional pricing models. CPL models allow advertisers to only pay for qualified leads, meaning they only pay for prospective buyers that become active customers. As a result, this is the most advertiser-friendly of the pricing models. CPL eliminates the chance that an advertiser will end up paying for accidental clicks and views by only qualifying leads that click through the advertisement and fill out a form on the company's website. Another benefit is the ability of advertisers to guarantee that they are generating returns with their online advertising budget.

Cost per engagement can be considered a combination of the cost per click and cost per action models. CPA is also known as cost per order (CPO), online lead generation and cost per conversion. It is the most specific of all the pricing models, only requiring an advertiser to pay when an action -- such as making a purchase or signing up for a service -- is taken. It works best as a motivator for immediate action when an advertiser wants the customer to complete the purchase right away.

Another benefit of the CPA model is the guarantee that advertisers will only pay for beneficial leads since they're only charged when a transaction has been made from their ad. Furthermore, cost per action pricing makes it easier for advertisers to establish a price point since the value of the customer can be established more feasibly.