Cost per mille (CPM) is a metric used in digital advertising to indicate the cost of 1000 impressions of an ad on the web. CPM provides insight into the cost efficiency of a digital ad in terms of the size of the online audience that views it. Understanding the basics of CPM is essential for successful marketing professionals in this day and age.
What is CPM?
CPM is a metric commonly used in digital marketing and advertising to indicate how much an advertiser pays for every one thousand impressions of their advertisement. Impressions are defined as the number of times an ad is seen by web users.
CPM stands for cost per mille, where mille means one thousand. You may sometimes see the same metric referred to as cost per thousand or CPT, although CPM is more commonly used.
Cost per mille is typically expressed as a currency value, for example in cents or dollars. However, it can also be expressed in other units such as clicks or views.
What is CPM used for?
The main purpose of CPM is to evaluate and optimize the performance of ad campaigns. CPM allows advertisers to compare the effectiveness of one ad or campaign against others more easily as by providing a relative unit of comparison.
In this way, CPM can be used to maximize return on investment (ROI) across campaigns. For instance, if one campaign results in a much higher CPM than others, it can be adjusted or terminated altogether. CPM can also be used to forecast future ad spend, helping marketers to stay within budget and make best use of their resources.
To evaluate how well your ads are performing, you can find out the average CPM for your industry, niche, or the ad platform you are using and compare results. Recent research shows that the average CPM for Google Display Ads is $3.12, Google Search Ads is $38.40, and Facebook Ads is $8.60. If your CPM is below industry averages, then you can assume that your ads are performing well.
How to calculate CPM
Cost per mille is calculated by dividing the cost of an advertising campaign by the total number of impressions received, then multiplying the result by one thousand.
Calculating CPM involves four steps:
- Determine the overall ad cost (or ad campaign cost), i.e. the total billed price.
- Use ad data gathered from your analytics software or ad provider to find out the total number of views (impressions).
- Take the total billed cost and divide it by the total number of views.
- Multiply by one thousand.
Here is an example of how CPM is calculated:
Total running cost of an ad is $3,000.
The total amount of impressions generated is 500,000.
Cost per impression = 3,000/500,000 = $0.006
Cost per mille (cost per thousand) = 0.006 x 1000 = $6.00
Why is CPM important?
CPM is an important metric to consider when planning, executing and optimizing digital advertising campaigns. It enables you to understand how much it costs to reach your audience with a particular ad.
Marketers and advertisers can use CPM to measure the effectiveness of their campaigns and adjust them to increase the return on investment (ROI). As one of the basic metrics used in digital advertising, marketers should pay close attention to CPM when making decisions about where and how they should allocate their advertising budget.
CPM can be used to measure the effectiveness of an advertisement’s placement, as well as its overall success. Comparing CPM helps you to determine which advertising channels provide the best results for your budget.
Limitations of CPM
It is also important to realize that there are some drawbacks of using CPM. The main disadvantage is that in some cases the data may not be accurate, for instance the number of impressions data may be inflated if there are duplicate views or ads that fail to load correctly.
Another disadvantage of CPM is that it can be manipulated by fraudulent site owners, who may use automated scripts and pop-ups that direct traffic to their site dishonestly and inflate the number of impressions.
Another limitation of CPM is that it gives you a cost based on how many people view your ad, but doesn’t tell you anything about how well that traffic converts. For instance, an ad may get 100,000 views, but only 100 clicks, which is a low conversion rate.
What is the difference between CPM and CPC?
CPC stands for cost per click, which is a measurement of how much you pay each time a person clicks on your ad.
CPC is an easy metric to calculate as it involves simply dividing the ad cost by the number of clicks.
For example, consider an ad with a total running cost of $5,000 that receives 100,000 clicks. The cost per click can be calculated:
CPC = 5,000 / 100,000 = $0.50
Advertisers will often calculate the maximum cost per click and average cost per click across campaigns as a comparison tool.
CPC and CPM are often used as pricing models in the advertising industry. CPC requires the advertiser to pay each time someone clicks on their ad, while CPM requires the advertiser to pay each time the ad receives 1000 impressions (views). When selecting between CPM and CPC as advertising strategies, it is important to consider factors such as audience reach and budget.
CPC may be more cost effective for some advertisers as they only pay for tangible results. However, paying per click doesn’t necessarily guarantee large audience reach. In other words, your ad may be seen by fewer people using the CPC pricing model.
On the other hand, CPM potentially offers more visibility and reach. On the downside, CPM pricing may require a larger budget. CPM may not deliver ROI results that are as good as CPC, especially if the ads don’t generate a high level of engagement.
Additionally, some platforms implement minimum threshold pricing policies,requiring advertisers to commit to a certain ad spend before they can access lower rates.
In general, CPM campaigns are usually cheaper than CPC, but CPC can generate a higher ROI for highly focused lead generation campaigns, especially for products or services that have a high price point.
How to reduce CPM
If you want to optimize your ad campaigns, then reducing CPM is a good place to start. There are several ways to reduce your CPM for an ad campaign.
- Improve your ad targeting: Focus on a specific audience that is likely to engage with your ad. One way to do this is to segment your audience by factors such as demographics, interests, buying patterns, and behavior.
- Be more creative: Strong visuals and copy that resonate with your target audience may attract more attention and result in higher click-through rates (CTR) and a reduced CPM. Experimenting with different formats and sizes can help to find the ones that work best for your ads.
- Improve your offer: Even if you have a highly engaged audience, you won’t be able to reduce your CPM and increase your CTR unless you have a good offer on the table. You can run A/B split tests for different offers, such as discounts, bundles, or free shipping.
- Change channels: High impact placements where there is less competition for ad space and fewer bidders vying for the same spot can help to reduce CPM. You may want to consider using platforms such as Google Ads, Facebook Ads or Outbrain, as they offer sophisticated tools to control bids by applying various criteria such as device type or geographic region. This means you can target users who are likely to engage with your ads while keeping a tight grip on your ad budget at the same time.
- Use retargeting: Retargeting campaigns help to reduce CPM and improve conversions, as they allow you to customize your messaging and target specific users who previously engaged with your brand or content in some way. Retargeting campaigns are usually more affordable and effective as they tap into users who already have awareness and interest in your brand or offering.