CPM vs. CPC vs. CPA

Cost-Per-Thousand
CPM pricing was actively promoted by the big portals such as Yahoo and AOL. It was a great revenue generator for them that had the added bonus of being largely risk free. That is, the advertiser did all the creative work and made the payments while the only thing the portals had to do was display the ad as often as they could until the advertiser's budget was exhausted. It's this one-sided nature of the CPM model that has pushed advertisers to seek an alternative that can offer them some sort of guarantee of performance.

Cost-Per-Action
CPA then seems to offer the best guarantee for advertisers. After all, with such a set up, the advertiser only pays when the prospect has performed a specific action such as registering or requesting information. And just to be explicit, the upside of this is that an ad can be displayed and clicked on many, many times with no cost to the advertiser. The problem here is that now all the risk has been shifted to the publisher since they now must give up their ad inventory and hope that the advertiser's message is compelling enough to result in "actions".

Cost-Per-Click
CPC sits in the middle of the online pricing spectrum. It involves risk from the advertiser's side in that they pay for every click on their ad. This forces them to make sure that the ad is relevant to what is being offered so that a click has a good chance of turning in to an action. At the same time, the publisher takes on the responsibility of displaying the ad in appropriate places so that it will receive clicks. No clicks, no revenue. It's a very simple formula for both sides.

via allthingssem.com

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