We've received lots of questions asking for clarification about the relationships between ad type (text vs. image), bidding method (CPM vs. CPC) and targeting type (site vs. contextual). To clear up any confusion, we've separated several myths from the facts.

Myth: All text-based ads are paid on cost-per-click (CPC) basis, and all image-based ads are paid on a cost-per-thousand impressions (CPM) basis.

Fact: Both text and image ads can be paid on either a CPC or CPM basis. AdWords advertisers can choose which type of ad they'd like to create -- e.g., CPM vs. CPC or text vs. image. In order for a CPM ad or an image CPC ad to win in the ad unit auction and appear on your site, it has to produce an effective CPM greater than the sum of the individual text ads that would otherwise appear.

Myth: If I set my ad unit to 'image only', I'll get exclusively CPM ads.

Fact: As mentioned above, image ads can be either CPC or CPM ads, so you could also see CPC image ads. You might also see public service ads if there is a limited inventory of image ads relevant to your site content. As a rule of thumb, we recommend opting into both text and image ads. Doing so expands the pool of advertisers competing to display on your site – both on a CPC and CPM basis – therefore maximizing your site's revenue potential. It also helps to choose an ad format that supports both text and image ads.

Keep in mind that currently, all CPM ads are site targeted, meaning that your site will only display CPM ads if an AdWords advertiser has decided your content is relevant to their ad campaign. To increase advertiser bidding on your site, you may wish to customize your Onsite Advertiser Sign-up landing page.

Myth: I can't participate in Onsite Advertiser Sign-up because I only want to display text ads on my site.

Fact: Since site-targeted CPM ads can be either text-based or image-based, you can still take advantage of this program even if you only want to show text ads. Advertisers who want to display on your site can create text-based site-targeted ads.